What Is Inventory Management?
Inventory management is the process of supervising, controlling and optimizing a store’s inventory of goods and materials. Inventory management involves planning, tracking and managing all aspects of the company’s inventory, from sourcing or manufacturing to shelves and sales to consumers. Inventory management has many aspects that are essential to store success:
- Demand forecasting.
- Ordering products and materials.
- Inventory monitoring.
- Inventory control (to avoid overstocks and stockouts).
- Storage and warehousing.
- Processing customer orders (preparation, packaging and shipping of products).
- Inventory valuation.
- Inventory optimization (finding the ideal quantity to meet demand while minimizing storage costs).
- Developing and maintaining close and lasting relationships with suppliers.
- Dead stock management.
All of these tasks can be done by a single person or an entire team. Click here to find out who is generally responsible for inventory in stores.
The Goal of Inventory Management
The main goal of inventory management is to save money. Indeed, inventory management is useful to strike the perfect balance between meeting demand and keeping customers satisfied, all while minimizing costs and preventing both excess stock and stock shortages.
Useful Tools for Inventory Management
Some softwares and other tools are very useful for effectively managing your inventory. Here are three:
Point of Sale System
A point of sale (POS) software with inventory management is a must for store managers to handle all store operations, not just inventory management.
A cloud-based POS software is particularly beneficial because it provides access to data anywhere and anytime. It also allows real-time inventory tracking as transactions occur in physical stores and the online store.
A point of sale software, such as Alice POS, is an all-in-one solution which does several inventory management tasks for you. For example, it can give an alert when the inventory level is low and merchandise needs to be reordered.
It also generates very useful reports to make informed decisions regarding inventory and the store in general. It also integrates with other softwares (accounting, e-commerce, loyalty program, inventory management software), which makes life much easier for retailers. It does many boring or unpleasant tasks for you!
Inventory Management Software
Inventory management software provides a centralized platform to track inventory levels, sales and orders. This kind of software often includes features like demand forecasting, real-time updates, and reporting.
Barcode Readers and Radio Frequency Identification (RFID) Tags
Barcode readers and radio frequency identification tags (or RFID tags) enable accurate and efficient tracking of inventory items. These tools help reduce data entry errors and streamline the picking, packing and shipping processes.
In addition to using these essential tools, you must also adopt the most effective inventory management methods to date. Click here to learn all these techniques for properly managing inventory.
The Benefits of Inventory Management
The greatness or the lack of inventory management directly influences other aspects of a business such as customer satisfaction, sales and financial condition.
Good inventory management therefore has many benefits for a retailer. Here are these advantages.
1. Money and Time Savings
Effective inventory management helps reduce inventory costs and helps to save quite some time. For example, maintaining optimal inventory levels allows you to avoid costs associated with stockouts or excess inventory. Also, if this type of problem does not monopolize employees’ time, they can perform other, more relevant tasks.
Effective inventory management helps reduce costs associated with storing unsold merchandise (storage space, insurance, taxes, handling fees, employee salaries). The longer merchandise is kept in storage before being sold, the more expensive it is and the more it is exposed to risks such as theft, obsolescence, loss and natural disasters.
By monitoring the condition of the equipment (computers, barcode readers, RFID tags, shelves, forklifts, printers, etc.), by adopting inventory management best practices and by ensuring accurate inventory data, a retailer can resolve issues more quickly and know when to schedule equipment maintenance. This allows to minimize unexpected breakdowns, optimize maintenance schedules and improve overall operational reliability. A retailer thus reduces its maintenance costs.
By tracking inventory, with a software for example, you save yourself the effort of having to carry out an inventory recount to ensure the accuracy of your data. By automating certain inventory management tasks, you give employees more time to work on more important tasks and to work on strategies for business growth.
This time and money that is no longer used on slow-moving items, stockouts or excess inventory can be better used elsewhere and help increase productivity.
2. Improved Financial Health and Cash Flow
Inventory management has a direct impact on the financial performance of a business. This affects metrics like profit margins, ROI, and cash flow, all of which are key indicators of a company’s health and success.
A better understanding of availability and demand leads to higher inventory turnover, and therefore to higher profits.
By managing inventory well, a retailer can also reduce the capital mobilized for inventory. If there is less excess inventory, stores can free up capital that can be used for other investments or operational needs and work towards growing the business.
A store can thus maintain appropriate working capital. This prevents excessive capital from being tied up in inventory, allowing funds to be used for other essential aspects of the business, such as investments, debts or daily operations.
Effective inventory management ensures that resources are allocated wisely, thereby improving the overall financial health of the company.
Inventory management and a point of sale software help automate processes, which reduces the time and effort required for tasks such as order fulfillment, replenishment and tracking stock levels. This automation makes operations more efficient in the warehouse.
Good inventory management also leads to streamlining various operational processes, such as order fulfillment, replenishment and production planning, which reduces manual efforts, minimizes errors and ultimately makes operations more efficient.
Also, recording accurate inventory data results in fewer order errors and customer complaints.
4. Better Knowledge of What is in the Inventory
Strong inventory management allows you to know exactly what is in stock and to determine the optimal order quantities to meet demand. This knowledge of the inventory allows you to have an overview and avoid selling more products than there are in inventory.
Through inventory tracking and inventory control, a retailer has a better knowledge of the products. As a result, they can effortlessly spot sales trends and keep tabs on recalled products or expiration dates.
Data-Driven Decision Making
A good overview of inventory helps to better forecast demand. Inventory management systems provide valuable data, insights and analytics. These can inform decision-making regarding inventory levels, demand forecasting, replenishment, pricing and product offerings.
Analyzing sales data and market trends also allows stores to more effectively align their inventory with customer demand.
5. Closer Relationships With Suppliers
Inventory management also provides information on which products are selling and in what quantity. This information can be used as leverage for companies to negotiate favorable terms with suppliers. Suppliers are more likely to offer better prices and good conditions to customers with consistent and predictable order patterns.
Also, monitoring supplier performance in terms of delivery times and product quality becomes easier with good inventory management.
6. Risk Mitigation and Minimizing Losses
Managing inventory levels helps to reduce the risk that products become obsolete or outdated. It also helps prevent theft or deterioration of the merchandise. By closely monitoring inventory levels and inventory turnover rates, a store can minimize the impact of these risks.
A point of sale or inventory management software allows you to mitigate the risks of overselling, especially when the retailer has several physical stores and an online store. By knowing precisely what is in stock and what is no longer in stock, retailers can protect themselves from this risk.
Inventory management requires forecasting demand for different periods. It helps retailers to mitigate excessive spending on storage, to ensure sufficient stocks to meet demand and to minimize losses associated with unsold products or missed sales due to stock shortages.
7. Compliance With Regulations and Industry Standards
Certain industries, pharmaceutical or food industries for example, have strict inventory management regulations to ensure product safety, traceability and quality. Good inventory management allows you to comply with industry standards and regulations.
8. Better Planning of Business Activities
With the insights provided by inventory management, retailers can better plan future operations and come up with better marketing strategies to increase conversions and profitability.
An effective inventory management strategy allows retailers to quickly scale their operations up or down depending on the reality of the business and the market. It offers the flexibility needed to adapt to growth opportunities or economic downturns.
9. Competitive Advantages
Retail stores with effective inventory management systems are often more competitive. They can offer better prices, faster delivery and greater product availability compared to their competitors whose inventory management is less effective.
10. Better Organization of Storage Space
A warehouse where items are arranged based on demand, frequently sold combinations, and other relevant factors not only lowers labor costs but also speeds up order fulfillment.
Optimization of Stock Levels
By maintaining rigorous inventory and errorless sales data, a retailer can accurately anticipate future customer needs. Those projections allow optimal quantity of products in stock, which will improve customer satisfaction.
Fewer Stockouts and Excess Inventory
Good inventory management helps stores avoid carrying too much inventory and minimize the number of days an item is out of stock if there are shortages. Click here to find out how to maintain a dead stock register in retail.
11. More Precision in Operations
Inventory management allows you to have an optimal quantity of products to fulfill orders. With accurate inventory tracking, a retailer can eliminate excess inventory and therefore reduce the cost and effort required to maintain it.
Improved Customer Satisfaction
Optimal inventory levels and greater accuracy in inventory management help reduce stockouts and ensure fast order fulfillment. This ensures that the products are ready and available to meet customer demand, leading to better customer satisfaction. A good inventory management strategy also reduces the risk of delivering the wrong item to the customer.
Customers who receive their order (with the right product!) on time are more satisfied. Satisfied customers are more likely to stay loyal to the store where they had a great shopping experience. Products that are always in stock when the customer wants to buy them as well as orders filled quickly and correctly keep customers coming back for more!
In short, here are many benefits of inventory management. It has considerable strategic importance as well as numerous advantages for a business. By investing in effective inventory management and leveraging the tools available, you can position your store for sustainable growth and continued success.