Inventory management is one of the cornerstones of profitable businesses producing and selling products. With ever increasing speed of commerce, customers' high expectations and cut-throat competition as the backdrop, it isn't surprising that efficient inventory management practices differentiate the best from the rest. Optimized inventory control can result in higher profits, lower costs and delighted customers.
What Is Inventory Management?
There are four different inventory types that an enterprise carries – raw materials, semi-finished goods, finished goods, and items for MRO (maintenance, repair, and overhaul). These goods are all part of the enterprise' value chain, and the process of ordering, storing, organizing, selling, and using these items as required, along with actionable reporting, is known as inventory management.
What Are the Primary Goals of Inventory Management?
Broadly, the primary objective of inventory management is to achieve optimum inventory control for an efficient, cost-effective and profitable business. This involves better control of the financial and operational parts of inventory management.
What Is an Inventory Control System?
An enterprise better manages its inventory by adopting an inventory control system. An inventory control system provides an optimized supply chain operation for end-to-end visibility across locations. The system also ensures that goods are received, stored, issued, and delivered with minimal physical intervention, thus improving efficiency.
The inventory control system streamlines planning and operations to optimize inventory levels besides meeting demand.
What Are the Different Types of Inventory Control Systems?
It is vital for a business to track its inventory and have the necessary data to control it. Companies use different types of control to optimize their inventories for efficiency while meeting the demand.
The three different types of inventory control systems generally used by businesses are a follows:
Manual Inventory Control System
As the name suggests, this is a manual record where the items in a warehouse are physically counted and a spreadsheet is updated. This is a cumbersome procedure, and only small businesses with a few hundred items in stock use it.
Periodic Inventory Control System
This system uses manual intervention as well as technology to update the inventory. Barcodes are scanned and a database is updated while items are picked or replenished in the warehouse.
Perpetual Inventory Control System
This system uses active and passive RFID tags to update inventory in real time. Active RFID tags continuously update the movement of each item in real-time, while passive RFID tags are scanned manually to update the inventory database with information.
What are the Challenges of Inventory Control?
Today's consumers expect the products they use to be available when they shop for them, whether online or in a retail store. Without control over their supply chains, enterprises will scramble to meet such expectations.
Enterprises face a variety of challenges – some of which are listed below:
Lack of Visibility
Enterprises relying on manual or age-old systems are entirely handicapped. Without visibility and critical data, businesses cannot order supplies to meet the required demand.
Manual control systems work as long as the business is small. But, once sales pick up, inefficient and cumbersome manual systems will start weighing down the business in multiple ways.
Demand and Market Volatility
Enterprises using poor systems and processes are unable to react to uncertainties timely. Due to market trends and consumer demands, volatility and uncertainty lead to either overstocking or understocking.
Dead Stock or Slow-Moving Items
Often enterprises are saddled with dead stock and have no record of it. Dead stock is created when items remain unsold for a while and become obsolete.
What Are the Benefits of Inventory Control Systems?
The most significant benefit of technology is that once it is set up, it runs efficiently with minimal supervision. The software can take care of all the manual and routine tasks. Besides, it provides real-time data with actionable insights to help manage inventories efficiently and meet customer expectations.
Better Management of Inventory
Real-time inventory data provides the necessary information to order right and meet the demand. Ordering correctly also helps prevent overstocking or understocking.
Cost Savings and Increased Profits
Ordering per forecasted demand helps the enterprise save on storage, ad-hoc purchases, and operating costs, thus enhancing profit.
Enhanced Customer Experience
Businesses can predict accurate delivery timelines with real-time visibility into inventory, which is key to delivering a superior customer experience.
Automated software solutions carry out manual and routine tasks that save valuable person-hours. The supervisory staff can instead use this time to focus on more strategic activities, thus increasing overall productivity.
Enterprises use a data-driven inventory solution that provides valuable insights into sales of products to improve relationships with strategic suppliers to deliver the right product in time for the right price and leverage for better contractual terms.
Data-Driven Actionable Insights
Better forecasting and visibility into market trends help enterprises balance supply against demand, automate replenishment, and plan for potential disruptions.
Efficient Warehouse Processes
Next-gen inventory software ensures efficient processes based on demand for quick and accurate fulfillment, helping enterprises gain and retain loyal customers.
Additional Read: Guide to Inventory and Warehouse Management
What are the Best Practices of Inventory Control Systems?
Unified Inventory and Warehouse Solution
With a unified inventory and warehouse solution, enterprises have complete visibility to make calculated decisions, such as delivering a product to a customer from the closest distribution center, thus saving on time and costs, unlike the earlier disconnected, independent systems, where this would have been impossible.
Global End-to-End Visibility in Real Time
Enterprises can leverage real-time visibility to react proactively to disruptions rapidly.
Connect and collaborate
Real-time information exchange with internal and external partners is essential for efficient inventory management and driving on-time delivery.
Intelligent Automation to Improve Exception Management
Automation infused with intelligence is critical for forecasting, planning, optimization and exception management. The self-learning abilities of AI improve the insights and recommendations it provides over time for better decision-making.
Comprehensive Data Providing Actionable Insights
Raw data from all sources, such as machine functions, IoT sensors, weather reports, and social media feeds, are collated and consolidated and presented as actionable insights to decision makers.
Better UX and Easy to Configure Workflows
The automated software system must be user-friendly, flexible, and easy to configure so that automated processes are significantly reduced over manual processes.
A global oil and gas company that modernized its inventory and warehouse management with solutions from GEP was able to achieve the following:
- Saved several million dollars a year by reducing inventory by 25%
- Improved operational efficiency by over 40%