This article will explain the benefits of strong inventory management practices. It explains what an inventory management system does and offers tips for picking the best system for your business.
In this article:
- The purpose of inventory management
- Inventory management benefits
- Tips for selecting an inventory management system
What Is Inventory Management?
Inventory management is the practice of planning the buying, storing and selling of stock—whether it’s raw materials, parts or finished goods—to ensure the right type and amount of stock is available without holding excess stock and thereby tying up cash. When done correctly, inventory management saves companies money.
What Is the Main Purpose of Inventory Management?
The primary purpose of inventory management is to ensure there is enough goods or materials to meet demand without creating overstock, or excess inventory.
What Are the Advantages of Inventory Management?
Accurate inventory management is key to running a successful product business. Tracking stock regularly can help avoid stock errors and other problems. The following are the benefits of strong inventory management:
- Better Inventory Accuracy: With solid inventory management, you know what’s in stock and order only the amount of inventory you need to meet demand.
- Reduced Risk of Overselling: Inventory management helps track what’s in stock and what’s on backorder, so you don’t oversell products.
- Cost Savings: Stock costs money until it sells. Carrying costs include storage handling and transportation fees, insurance and employee salaries. Inventory is also at risk of theft, loss from natural disasters or obsolescence.
- Avoiding Stockouts and Excess Stock: Better planning and management helps a business minimise the number of days, if any, that an item is out of stock and avoid carrying too much inventory. Learn more about solving for stockouts in our “Essential Guide to Inventory Control.”
- Greater Insights: With inventory tracking and stock control, you can also easily spot sales trends or track recalled products or expiry dates.
- Better Terms With Vendors and Suppliers: Inventory management also provides insights about which products sell and in what volume. Use that knowledge as leverage to negotiate better prices and terms with suppliers.
- More Productivity: Good inventory management solutions save time that could be spent on other activities.
- Increased Profits: A better understanding of both availability and demand leads to higher inventory turnover, which leads to greater profits.
- A More Organised Warehouse: An efficient warehouse with items organised based on demand, which items are often sold together and other factors reduces labour costs and speeds order fulfilment.
- Better Customer Experience: Customers that receive what they order on time are more loyal.
Benefits of Inventory Management Software Integrated with ERP
Inventory management practices can help you save money and keep an accurate stock count. However, you can see more benefits when you add an ERP system with inventory management capabilities. With this type of system in place, you’ll be able to:
- Understand Inventory Levels Across the Business: ERP systems can provide an end-to-end view into orders through all departments, from sales to accounting to fulfilment. Centralised purchasing reduces duplication when replenishing stock, and having the ability to purchase in bulk saves money. Further benefits abound when you integrate your inventory software with accounting and back-office processes.
- Automate Manual Tasks: Barcode and RFID scanning can speed stock-taking, receiving and fulfilment. Using software reduces errors from manual entries and frees staff from repetitive tasks.
- Greater Visibility with Real-Time Data : The right inventory management software will give you access to real-time information on all SKUs, in all facilities. It will deliver this data to all devices, no matter where you are.
- Improve Forecasting: Software that handles data collection and analytics can provide insights into trends. And when you understand trends, you can improve your stock forecasting.
- Data-Driven Decision Making: Leverage the analytics capabilities of inventory management software to make data-driven stock decisions. Save money by reducing inventory and carrying costs.
- Support Uninterrupted Production: By forecasting both demand and lead time, you can ensure production never experiences a shortage.
- Harmonise Multiple Inventory Locations: Get an overview of stock levels in all your warehouses, distribution centres as well as retail stores and suppliers.
- Optimise All Inventory: A robust inventory management software system helps maintain the right mix of stock and quantities, and at the best carrying costs. It’ll help you ensure you never have too much or too little on-hand.
- Scale Inventory as Your Business Grows: You can’t accurately track 1,000 SKUs in 15 facilities manually. Inventory management software can handle that task for you.
- Ensure Compliance With Local Accounting Standards: Correctly valuing stock is vital for financial transparency. Inventory management software can help with compliance with local accounting standards in your country.
- Improve Product Visibility in Recalls: Digital systems allow managers to use lot or serial number records to trace products by date and location.
What Are the Disadvantages of Inventory Management Systems?
The disadvantages of inventory management systems are the same as for other software. Solutions can be expensive, hard to learn and subject to hacks. However, simple safeguards can mitigate weaknesses:
- Expensive for Small Businesses: The cost of inventory management software can seem daunting to a small business, but the investment often pays for itself in increased profits and improved customer loyalty. Additionally, cloud-based systems have made software that was once the domain of large enterprises available to smaller businesses.
- Complex to Learn: Business software is sometimes tricky to learn. However, managers can help by investing in online training to quickly bring users up to speed.
- Risk of System Crashes: Software does crash. However, you can remove the risk of data and productivity loss by using cloud-based platforms.
- Malicious Hacks: Malicious hacks are a risk to all businesses. The Internet of Things (IoT) adds even more complexity. Cloud-based software typically has greater security than a single company would offer on its own because of the risk a breach would have on the vendor.
- Reduced Physical Audits: When you automate some warehouse operations, it’s easy to skip a physical inventory check. Solve this by instituting regular audits.
How to Choose an Inventory Management System
Selecting the best inventory management software requires a few basic steps:
- Define your inventory management problems.
- Understand who will use the software and consider any integrations, such as Electronic Data Interchange (EDI). For help understanding your particular software needs, see “Choosing the Right Inventory Management System.”
- Look for software with three essential features: automated replenishment, cycle counting and traceability.
In today’s landscape, inventory planners need near- and real-time data collecting, reporting and analytics. In choosing a system, it’s helpful to review case studies of other businesses’ inventory experiences.
Reap the Benefits of Inventory Management With NetSuite
Properly managing inventory can make or break a business, and having insight into your stock at any given moment is critical to success. With the right tools in place, decision-makers can manage their inventory effectively and lower expenses.
NetSuite offers a suite of native tools for tracking inventory in multiple locations, determining reorder points and managing stock and cycle counts. You can also find the right balance between demand and supply across your entire organisation with the demand planning and distribution requirements planning features. These solutions are a fit for businesses of many sizes, from startup to Fortune 100.