Inventory management is a component of supply chain management that supervises the flow of goods from manufacturers to warehouses and from these facilities to point of sale. It is a complex process that determines the survival of a business. Storage costs, inventory handling costs, obsolescence of goods, the loss and damage of goods all contribute to the cost of inventory. The cost of holding inventories is in between 4% to 10% of the value of the inventory goods. On occasions, these numbers can reach up to 40%. Businesses can adopt fast and efficient inventory management systems in order to minimize cost and keep profits high. This guide will explore 3 such ways to do that.
If you are still using pen and paper to keep track of inventory stock then it’s time to throw that away. This process is time-consuming and prone to errors. It is crucial that you automate the process of inventory management. Barcode scanners are very good at this job. They can instantly input data about the item and save your business both time and money. They will also rid your employees of a lot of hassle. There are still many companies that use excel to keep track of their stockrooms. This process, though effective in the past is outdated now.
There are much better systems out there now. In today’s fast-paced business environment, one needs a centralized database. Multiple people must have access to the database and it must update in real time. This will help you to have a clear picture of your supply chain and inventory demands. As we are on the topic of databases, this creates a nice segway for us to move onto ERP.
ERP stands for enterprise resource planning. They are basically interconnected software that manages different sectors of business. This includes inventory management. ERP inventory management systems have several advantages. It saves cost by reducing the number of unnecessary products in storage and keep lost sales to a minimum by having enough stock present to meet demands. ERP Softwares also greatly increase efficiency. It can automatically record data and perform calculations. This helps to both save time and cost. It also helps with organizing your warehouse where it takes care of things like grouping products or cycles checking. You can get real-time information about your inventory using your phone or laptop. All of these can be done without compromising data security. The main disadvantage when it comes to using ERP software is that it can be pretty expensive and the system is very complex.
- CLOUD INVENTORY MANAGEMENT
A cloud inventory management system works similarly to an ERP system. However, it has easier integration and better efficiency. It can easily integrate with your other business related software. When it comes to real-time inventory monitoring, a cloud-based inventory management system does a better job. This type of system offers greater accessibility. A single change can be seen company-wide instantaneously. Cloud-based solutions provide great inter-departmental communication. This improved coordination between departments makes it easier to know when to restock and when customer orders have been shipped. This improves the customer experience as operations run smoothly and efficiently. Cloud-based systems can be deployed very fast unlike ERP systems. Businesses can subscribe to a monthly or yearly subscription service and start using the inventory software via the internet right away. As the software resides in the cloud, businesses don’t have to deal with expensive hardware. Your business doesn’t have to employ a large IT workforce as the service provider will maintain the inventory for you. The drawbacks to using a cloud-based inventory system are that businesses are too dependent on the service provider. There is also a security risk as data is handled by a third party which means there is a chance of data being accessed by unauthorized users.
The last method I want to talk about is the JIT (just in time) inventory management system. This method increases efficiency, cut costs and decreases waste by receiving goods only when they are needed. JIT requires that no buffer inventory is held, components arrive just as they are needed on the production line and finished goods are delivered to customers as soon as they are completed.
This process is easy to understand but can be pretty hard to put into practice. There are certain requirements that must be met before adopting such a system. Your business has to research about buying patterns, seasonal demand and location-based factors that present an accurate picture of what goods are needed at certain times and places. You can face out of stock issues if you misread the market demand or have distribution problems with suppliers. For this reason, your relationship with your supplier must be excellent.
Your staff must be multiskilled and your equipment and machinery flexible. Your demand forecasts have to be spot on. Make sure that you are using the latest IT equipment for operations. Great employee-employer relationship is essential for JIT to operate smoothly as any break in the supply can cause the entire system to grind to a halt. Quality control is a priority as any poor quality goods that cannot be used will mean that a customer will not receive goods in time.
JIT is a high-risk high reward system. On one hand, you will have lower inventory costs, improved cash flow, and less dead stock. But on the other hand, You can face problems with order fulfillment. There is little room for error as any miscalculation will negatively impact business operations. With a JIT system, you can’t wait around for the best prices on goods. When prices go up, profit margins go down.
Hopefully, you now have a better idea about inventory management and how you can make the process faster. All 3 systems mentioned here have their own set of advantages and disadvantages. You have to choose one according to your own business model.