6 Things to Consider in Your Inventory Management System
Written by: James Snyder
Inventory management is a main objective within the broader supply chain space. No matter what type of product your company produces, acquires or distributes, stakeholders need high degrees of insight and control to make inventory management as effective as possible.
A variety of financial, operational and reputational considerations come into play when managing inventory and developing strategies to improve those efforts. With the right changes, your company can potentially cut costs, improve partnerships with customers and suppliers, make work more manageable and successful for staff and deliver on promises made to customers.
From raw materials to finished goods, your overall supply chain strategy has to take location, quality and timing of inventory into account. That’s why an inventory management system is so critical. Consider this foundational guidance about inventory management processes and how it applies to an effective inventory management system.
1. Why is inventory management important?
Inventory management is the backbone of companies focused on manufacturing, distributing and selling products.
Without strong insight into physical inventory, organizations can’t make logical, data-backed decisions related to everything from the cost of inventory to customer demand. An accurate count of everything in the warehouse - as well as items in production internally and finished products on their way to customers or retail locations - helps businesses maintain control and avoid cost overruns and product deficiencies.
With so many potential issues present in the world of inventory management, dependable support is critical. Managing inventory through wholly manual processes or with disconnected spreadsheets and documents - which are rife with issues related to version control and stakeholder accessibility - is simply not enough in a modern business. Companies that continue to rely on older forms of inventory oversight and tracking miss out on the advantages that come with leading-edge management strategies, and will fall behind competitors who adopt these practices.
2. What are the principles and best practices of inventory management?
Inventory management thrives when consistent rules, processes and workflows guide employee decision-making and the work of automated tools. Some key considerations to make include:
Operational layout
The physical structure of individual warehouses and the overall design of any facilities used to manage or store inventory can have a major impact on efficiency and productivity. Needs can vary significantly from one organization to the next, as Multichannel Merchant pointed out.
Individual preferences and areas of focus - e.g., delivering inventory to retail locations versus stocking designed to maximize order fulfillment - can greatly change the concept of an ideal layout. In every case, businesses should identify the intent and function of each facility involved in this aspect of the supply chain, then design an operational layout with those specifics in mind.
Limiting excess inventory
Items that don’t make their way to a retail touchpoint or directly to an individual consumer carry recurring costs related to the space they occupy in a warehouse and the time it takes to track and manage them. Identifying ideal inventory control stocking levels, then readjusting based on analysis and forecasting helps to minimize this concern. Setting minimum and maximum inventory thresholds for each item based on similar principles can also limit the potential for excess inventory. Identifying and acting on excess inventory allows businesses to convert that asset into cash that can then be reinvested.
Maintaining lean operations
Businesses can limit excess inventory, especially in terms of low-selling items, and still face additional costs when they stock too much of their best-selling products and the raw materials used to create them.
Carrying inventory beyond what’s needed to maintain a steady supply chain is another financial obligation for businesses to contend with. A lean approach to stocking requires agile, dependable inventory management tools and a trustworthy supply chain - whether using an internal fleet or third-party logistics providers.
Efficient organization of inventory
The most popular inventory items should be the easiest for employees to pick and pack or load onto a truck headed for a retail location, reducing the time spent managing an asset that workers frequently interact with. Similarly, less popular but still profitable inventory shouldn’t be in the most valuable warehouse locations.
3. What are the cornerstones of inventory management tools?
Inventory management tools have four foundational aspects that empower the businesses that use them:
1. Data
Effective access to data related to inventory management helps businesses make key decisions in a timely manner with the confidence of impartial information and analysis backing those choices.
2. Process
Inventory management tools help to standardize and refine a variety of processes related to inventory, making workflows more clear and allowing for more consistency across the board.
3. Making informed decisions quickly
Timeliness is critical when it comes to managing inventory. With the right tool in place, decision-makers can act without delay and bring the maximum benefit to the business.
4. Continuous learning and adjustment
Inventory management is an ongoing process, with new opportunities and challenges presented on a regular basis. Inventory management tools help businesses adjust effectively and continue to improve in the long term.
Systems to track orders, stock levels and other key metrics allow stakeholders to make the best decisions possible, as efficiently as possible. Decision-makers can analyze, report and forecast a variety of valuable business insights, converting them into actionable intelligence regardless of location, time of day or variables involved. This facilitates a two-level approach that allows VPs and directors to take a top-down view of the process necessary to drive down inventory while also allowing frontline staff to manage operations and necessary changes down to the individual SKU.
With the right inventory management tools in place, businesses don’t have to worry about operational paralysis due to a lack of data.
Although inventory management is a complex process for larger organizations, its basics generally remain the same from one enterprise to the next, as TechTarget explained.
One of the key differentiators is the number of locations inventory flows through and the division of work required to accurately track these assets as they move through each stop. Large businesses can easily have several facilities partially or wholly focused on inventory, and each building may have several areas for receiving, storing and preparing inventory to move on to the next stage in the supply chain. Cost and activity tracking allows businesses to identify waste within their networks, prioritizing the most important actions that realize the most significant benefits.
Visibility across each of these locations is critical for large companies, ensuring that inventory is properly utilized and in a position to be sold instead of abandoned or left to sit. Anaplan can help to highlight inventory that is not positioned to be sold, mitigating this burden. This is just one example of how older inventory management tools, which lack a consistent connection to one another, can be of limited use - and how an inventory management system can prove to be a significantly more reliable tool.
4. What does a dependable inventory management system offer?
A disciplined, thoughtful and carefully controlled approach to inventory management helps to:
Manage the investment made in inventory to maximize profitability, converting inventory to cash and allowing your business to reinvest that money as it sees fit.
Avoid unnecessary costs.
Increase visibility into operations.
Improve performance, whether it’s meeting delivery deadlines, addressing exceptions or planning around disruptions in the supply chain.
To achieve these goals, inventory management systems help businesses through a mix of automation, forecasting, analysis and exception management in specific circumstances and similar functions that are best performed by applications as opposed to staff members.
While personal skills like critical thinking and interpreting results in the right context are absolutely necessary for successful inventory management, the calculations and monitoring handled by an inventory management system are free of human error. The overall objective is to create an environment where your inventory management system does the heavy lifting, while operators tune the controls and manage exceptions.
5. What are the common components of an inventory management system?
What specific qualities should you seek out in an inventory management system? While there are a wide range of processes and tools to consider, there are a few key attributes that must be present in all inventory management software. Some top considerations include:
Unit and activity tracking
This is a basic yet valuable feature in modern inventory management systems. The ability to scan inventory as opposed to conducting manual counts creates uptime at every single touchpoint. Using RFID to track product movement and age, for example, provides additional valuable insight. The right partner can use their knowledge and experience to help your organization implement the best possible tools based on their knowledge and experience.
Inventory analysis
Automated analysis of inventory levels helps organizations spot excesses and deficiencies. They also empower stakeholders to act on that information more confidently and quickly than is otherwise possible. This function comes into play prominently in the domain of raw materials and production, in addition to when and how finished products are sent from the warehouse to customers.
Ordering and purchasing
Maintaining a single set of records related to ordering and purchasing reduces confusion and helps keep inventory levels in the right position even as factors related to supply and demand change. Order management tools can also help businesses identify exceptions - delays, shipping issues and other problems - that can be addressed in a more timely manner. Anaplan won’t be the system of record for transactions like orders, sales and returns, but it will drive those systems with data and analysis.
Forecasting
Informed predictions give businesses the power to make educated decisions about necessary changes to inventory management with plenty of lead time. Establishing a forecast and measuring the decisions driven by it helps businesses continually adjust and realize improved outcomes in areas like setting allocation parameters and suggesting orders. Measuring forecast accuracy and tracking the type of forecast used, whether statistical, curve based or driver based, provides continuing opportunities for optimization.
Analytics and reporting
Current, relevant analytics and reporting are vital for identifying potential and existing issues related to inventory management and the supply chain process in general.
Warehouse and stocking management
Finding the best locations to store inventory within the warehouse helps employees operate more efficiently and consistently. Information related to stocking, picking and packing can help keep costs low and improve overall supply chain management.
Effective change management
While not directly related to specific inventory management concerns, employee opinions of a management system is absolutely vital for long-term adoption and success. Employees need to buy into the concept of an inventory management system early on to make widespread adoption possible.
Change management efforts on the part of company leaders are vital for encouraging adoption, addressing concerns in terms of changes in day-to-day workflows and demonstrating the benefits of this new strategy. Along with considerations pertaining to company culture and promotion of the new tool by leadership, an easily understood interface can encourage use and reduce pushback by showing staff how straightforward the new system is.
Planning for changes to business processes is also important. A sudden, dramatic shift can be too much for many organizations. By following a more gradual transition plan, organizations can identify potential problem areas and address them in a more manageable fashion.
These are far from the only elements necessary for a successful inventory management system. Tools for tracking cycle counts as part of overall quality control efforts, closely monitoring high-value materials and finished products, transfer management between locations and other needs which are critical for some companies should also be considered.
The five points detailed above are an easily defined starting point, one that ensures your organization has the basic capabilities needed to realize steady improvement and sustainable benefits in this area of operations.
6. Why is the right partner so important to success with inventory management systems?
Inventory management systems are carefully designed and powerful tools created to both oversee complex supply chain processes and connect with many other platforms used by modern companies.
Without the right background and experience, it can be difficult and costly - or wholly impossible - to achieve a successful implementation. Finding the right organization to lend their expertise to the effort can mean the difference between a long, frustrating deployment and a smooth, successful implementation that sticks to a reasonable timeline.
As an Anaplan Gold Partner, Allitix has the necessary organizational knowledge and insight to lead your inventory management system project. We ensure the benefits are targeted, relevant, and measurable for every single client. With an average of 30 years of retail and supply chain experience across our staff and dozens of successful previous efforts, we’re confident we can help your company implement an inventory management system that fully aligns with your organization’s needs and objectives.
We prioritize a high level of customer service and consistently innovate within our areas of consulting practice, offering unparalleled resources and a pragmatic approach to all projects. This combination of attributes is critical for a successful implementation of platforms like inventory management systems. Thanks to our work with more than 50 current clients, we know our approach drives dependable, positive results.
To learn more about how Allitix can help your company improve inventory management by automating a host of processes and delivering consistent insight into operations, contact us today.
Sources:
SPB: https://docs.google.com/document/d/129C1trQlXZo-Lzhu35NfnetdwxDi73DpI6_3baxp43I/edit#
Background/corroboration from potential competitors re: key features of an inventory management system:
https://www.fcbco.com/blog/top-6-features-to-look-for-in-an-inventory-management-system
https://selecthub.com/inventory-management/inventory-management-software-top-features-requirements/
https://blog.capterra.com/what-is-an-inventory-management-system/
https://www.clearspider.com/blog-six-must-inventory-features/
https://multichannelmerchant.com/operations/storage-and-inventory-control-best-practices/
https://searcherp.techtarget.com/definition/inventory-management