November 30th, 2020
Inventory management: Everything You Need to Know
I want you to take a moment and picture a successful Aussie retail business in your mind. What did you picture? A small local shop in your area or a huge multinational company?
What makes the business you pictured unique? Do they consistently have the products you want in stock and always deliver products on time?
If your answer to these questions was “yes,” then the business probably has a good inventory system that helps them keep track of everything. And it is even more likely they are using inventory management software to do so.
Inventory Management Is the Backbone of Every Business
In this post, we discuss everything you need to know about inventory management. Let us get started.
The truth is that inventory management is the backbone of every successful Aussie retailer. An inventory management system plays a critical role in tracking your inventory and the stock’s lifecycle as it comes and goes out of the business.
When you don’t know how much inventory you have, you cannot make smart decisions. Whether you run an e-commerce store,conventional brick-and-mortar, multi-channel or omni-channel store, inventory management is key to success.
What Is Inventory Management?
In simple terms, inventory management refers to the supervision of your finished goods as they move in and out of business premises. It is part of the supply chain management that oversees the flow of products from manufacturers to warehouses to final points of sale.
A key function of the process is to keep a detailed record of each new/ returned product as it enters/leaves the business warehouse. In business language, inventory management means having the right stock at the right levels in the right place at the right time.
Unlike an ERP system, an inventory management system focuses on one supply chain process. Most of these systems usually come with other software systems such as shipping, chain management, and point of sale terminals.
This is meant to help you build a highly personalized integration stack that suits your unique business needs.
Inventory Management vs. Inventory Control: Which One Comes First?
Although inventory control is a key part of inventory management, the two terms don’t mean the same thing.
While inventory management focuses on the flow of products, inventory control refers to how you manage the business stock you currently have.
It involves understanding your stock inside out and ensuring you are stocking efficiently, minimizing time spent counting and controlling inventory, and keeping costs down.
However, inventory management is much broader than inventory control since it takes manufacturing, supply chain, fulfillment, sales, and reporting into account.
Every e-commerce store must get inventory management into place before they narrow down to control. Otherwise, you may have no way of managing production, suppliers, and sales.
The Inventory Management Process
Inventory management is quite a complex process, especially for large businesses such as eBay. However the basics are essentially the same regardless of the business size or type. In inventory management, products are usually delivered to the receiving area of your business- in the form of finished products- and put on shelves or stock areas.
In smaller Aussie retailer businesses that lack a lot of space, received goods may go directly to the stock area then to the shelves instead of passing through the receiving area.
Inventory control and management uses different data types to keep track of products as they move through the different processes and stages. Some of the parameters used to keep track of the goods include serial numbers, lot numbers, the quantity, cost, and the exact dates when they move through the process.
Key Features of Inventory Management
Here are some of the key features of the process:
Picking and packing
Direct employees in-charge of picking and packing products to the correct warehouse locations. This is mostly applicable to large organizations.
The primary purpose of shipping is to manage invoices, product packing sheets, and lots of other related documents.
Directs the placement of finished goods in the warehouse to ensure the effective use of the available space.
This aspect of inventory management manages all incoming orders to guide fulfillment and shipping operations.
Tracking inventory levels
Keeps track of the current inventory status on each product or stock-keeping unit number (SKU).
It supports a wide range of cycle counting inventory strategies that help in maintaining up-to-date totals.
Manages the barcode scanning inputs and also integrates with shipping, accounting, sales, and other systems.
Generates a lot of data for actionable intelligence to help drive the tactical and strategic business decision-making process.
Types of Inventory
There are five different types of inventory when it comes to the products that a business sells. They are:
This refers to the materials required to turn your inventory into a finished product. For instance, if you manufacture belts, the raw material you require is leather, and if you sell artificial flowers for interior design, you need cotton.
The work-in-progress inventory refers to different parts processed in a system. It includes the necessary materials required, parts/components/ assemblies, and subassemblies. WIP may include raw materials that have been released for initial processing.
It also covers the entire process of production. For instance, if you own an auto repair shop, brake pads would be part of your work-in-progress inventory.
MRO stands for maintenance, repair, and operation supplies. This inventory keeps track of materials, equipment, and supplies used in the manufacturing process but are not part of the finished product.
Some of the items that MRO inventory keeps track of include repair tools, cleaning/janitorial supplies, laboratory equipment, computers/laptops, office supplies, and safety equipment.
Many companies fail to realize the importance of an MRO inventory because it is usually removed from product inventory and does not generate revenue.
This is perhaps the most straightforward inventory type because it covers the products you have listed for sale. Any finished product that is ready to be sold falls under this category.
For instance, if you own a restaurant that makes pre-packaged ice cream treats, the already packaged and boxed ice cream cones would fall under the finished products inventory.
A good inventory management software such as Ricemill is all you need to keep track of your finished goods inventory.
Vendor managed inventory
For giant multinational organizations such as Walmart, eBay, and Amazon, keeping track of stock in different stores can be quite difficult.
In such a case, the organization doesn’t have to maintain their own inventory. Instead, they allow their vendors/suppliers to take care of all of their restocking needs, delivering new orders each time a product hits the reorder point.
Technically, it means that suppliers manage their individual inventories within the organization’s warehouse. Luckily, even small and medium-sized retailers can convince their suppliers to do the same thing.
Most suppliers are willing to agree to the arrangement because it is a win-win situation, especially if you usually purchase a significant volume of products from them. Requesting them to manage your inventory will only bring the two of you closer and strengthen your relationship.
Why Is Inventory Management Important?
The truth is that inventory management is the fundamental building block to business success and longevity. When your business inventory is properly organized, the rest of your supply chain management will automatically fall into place.
Without proper inventory management, you risk committing costly business mistakes such as running out of stock, overstocking, mis-picks, and mis-shipments.
Proper inventory management also plays a critical role in keeping your customers happy because it dictates how quickly you can get products to them and how reliable you are. Customers will most likely come back if they know you can fulfill and deliver their orders consistently.
With happy customers, it means you can run your business smoothly and scale. The sad truth is that if your business fails to manage its inventory effectively, it will quickly fall apart, and you will be left with nothing.
As the world evolves and businesses become more complex, the inventory management process also gets complex. However, with a good inventory management system, you gain control over your physical inventory and plan on scaling.
One thing you must always remember is that inventory is the biggest asset to your business. If you manage it properly, it can save you a lot of money and push your business to the next level. As a business owner, you need to protect that asset and carefully nurture it in the right direction.
Without implementing proper inventory management techniques and monitoring everything, failure is inevitable. If you haven’t installed an inventory management system, please do so as soon as possible.
To find out more about inventory management for retailers, contact us today and speak to an expert. We are always pleased to serve you!