Most consumers don’t really understand how efficient inventory management works, even though they’re addicted to it. As people shop for things at grocery stores, clothing stores, and other retail outlets, they express fast frustration when items are out of stock.
It makes them question your company’s reliability, reputation, and even its overall financial stability. They naturally wonder, “Why can’t they keep things in stock? Is this company failing? Should I start shopping elsewhere?”
What is Inventory Management in 2020?
As long as merchants have existed so has inventory management. In today's world it means not only maintaining an inventory management system that keeps your stock data accurate and current, but also provides visibility into your supply chain's efficiency - or lack thereof.
TradeGecko.com has a concise definition of modern inventory management:
"Inventory management is a systematic approach to obtaining, storing, and profiting from non-capital assets (raw materials and finished goods). The right stock, at the right levels, in the right place, at the right time, and at the right cost."
The Challenges of Modern Inventory Management
From retail consumers to B2B buyers, modern shoppers simply expect things to be in stock at the exact moment they decide to shop. They also hope to make extremely fast purchases that result in immediate or next-day delivery.
As a result, precise inventory management has become a huge challenge for the average retailer. In fact, according to RepricerExpress 43% of retailers say inventory management is now their number one daily challenge.
We can probably blame “the Amazon effect” for this phenomenon because Amazon.com has reshaped global consumer expectations. But the truth is, people have always wanted fast, efficient buying. Amazon simply turned next-month and next-week delivery into NOW.
So here are some questions to consider:
- How far is your company from NOW?
- Do you struggle to keep a firm grip on inventory?
- Are there kinks in your supply chain?
If your company needs help managing inventory, read on. Here are some best practices for managing inventory in the modern era.
Focus on Precision in Order Quantities
First, take some time to consider how accurate your own orders are. When a company has poor inventory management, there is a tendency to order raw materials in large batches, then wait until items are nearly or totally out of stock and place a new order. Unfortunately, this leads to out-of-stock items and unhappy customers.
This wait-and-see approach also has other negative consequences. It requires you to have a large amount of warehousing space. It creates an influx of work for your staff at unpredictable times. It creates problems with budgeting and sticking to a business plan.
Instead, convert to just-in-time (JIT) ordering, which creates an ordering and delivery schedule that anticipates when you’ll need fresh inventory and delivers it at the perfect time. JIT tracks your end-to-end inventory management so that you can always act with accuracy.
Adjust Timing Based on Data
Another way to tighten up your inventory management is to carefully track your ordering, processing, and delivery information and make small tweaks and adjustments over time. This eliminates assumptions about your inventory and uses real data instead
Traditionally, this can be done on paper or through the use of detailed spreadsheets. However by-hand inventory management allows errors to the introduced into the data. It’s also extremely time-consuming. Consider using inventory management software instead.
Create a Policy on Safety Stock
Safety stock is an excessive amount of inventory that is held to prevent periods of being out of stock. On the positive side, this approach buffers you against production slowdowns and the unavailability of resources.
But while this seems like a safe approach, it can actually be costly and risky for your company. Excess inventory can easily become obsolete in the marketplace and unable to ever be sold. Perishables go stale, technology changes, and your competitors have an opportunity to outmaneuver you - all while you’re sitting on an expensive back-stock of inventory.
To combat these negative outcomes, stay on top of your customer demand for each specific inventory item and sell off excess inventory before the market changes drastically. Also, stay in close touch with suppliers to predict resource lulls.
Consider Lean Inventory Management Techniques
In recent decades, we’ve seen a huge push toward lean inventory management, where inventory levels are kept very low while the company remains extremely responsive to changes in demand. This model was popularized by Toyota Production Systems, which used it to outsmart automotive competitors.
Lean management doesn’t work for every industry, but it’s worth considering for your company - especially if you have a digital inventory management system in place. Digital systems help you stay lean and act with agility.
Brush Up on Your Forecasting Skills
Does your company create forecasts on a regular basis? How accurate are they?
A post by CFO claims that just 1% of companies regularly reach 90% accuracy with their 30-day forecasting goals. According to the study, most companies do 4 things that interfere with accurate forecasting:
- They skip crucial steps, like keeping everyone informed
- They miss details, like updating timelines
- They mishandle metrics by not measuring/acting upon them
- They have an old-fashioned forecasting process that prevents their accounting division from acting in harmony with other parts of the company.
Better Inventory Management in 2020
Here’s the bottom line on inventory management: If you’re struggling to keep it running smoothly, you need a digital monitoring system that will give you a better grip on the details.
Stave AssetPath, an innovative inventory management tool, allows you to adjust inventory quickly based on changing resources and demand. Use it to reduce the costs of holding excess inventory and drive better profitability for your business.