Inventory control has become increasingly important. Supply chains are becoming harder to manage, and the effects of globalization are being felt by both manufacturing and distribution companies alike. The pressure from consumers for companies to always have products in stock is beginning to take a heavy toll on manufacturing companies.
Due to the increasing demand for product availability, manufacturers and distributors are upgrading their stock-keeping policies and rolling out new product introductions to keep up with the ever-increasing demand. As a result, many companies are looking to implement inventory management strategies designed to reduce costs and improve inventory efficiency.
Download our free whitepaper, Four Strategies for Smarter Inventory Control.
Traditional Inventory Management Is Out—Inventory Control and Optimization Is In
Traditional inventory management strategies (even the most advanced inventory management techniques) are not meeting the expectations of manufacturers. Many companies are having difficulty reducing inventory with these strategies and are looking for new ways to reduce their inventory and cut costs. Many companies are now applying the latest techniques and technologies to their inventory management procedures to increase inventory visibility and improve management across the supply chain. This is called inventory optimization.
The Need for Inventory Optimization
Inventory optimization helps manufacturers control their inventory-driven costs, as well as address product demand volatility and supply chain complexity. Traditionally, manufacturing companies have kept their warehouses fully stocked to ensure their customers are well served. This, however, results in overstock and is detrimental to the business. Excess stock generally leads to poor warehouse management due to large inventory levels, the need for more storage space, increased overheads, shelves stocked full of obsolete or expired goods, and a storehouse filled with what could otherwise be money in the bank.
Understocking, however, is just as detrimental—if not worse. Understocking can lead to poor service levels, low customer satisfaction rates, and greater expenses in part due to rushed delivery costs. Manufacturing companies rarely get a second chance with customers and end up losing crucial business opportunities. Larger companies with complex and global supply chains often feel the impact more than smaller manufacturing companies. One small change in inventory levels can have an impact on the profit and loss of a large manufacturing company, and accurate forecasting becomes harder as supply chains grow more complex.
Inventory optimization can relieve the stress many manufacturing companies are currently under and help them maintain a fluid and profitable supply chain.
Five Inventory Control Problems
Inventory control problems generally fall into two categories:
- Stock problems
- Staff problems
Stock problems are those that affect managing inventory items: picking and packing, inventory management, and so on. Staff problems include training, orientation, and safety.
These five inventory control problems span both categories.
Stock Problems
- Problem: Supply chain complexity
Supply chain complexity is what leads to things like a lack of canned cat food and stores that ran out of 5-pound bags of flour during the pandemic.
Supply chains are indeed complex, with materials like cans coming from different places than the raw materials that go into them. Without the right packaging materials and raw materials, production can grind to a halt. Hence the lack of canned cat food on the shelves at the local big box stores.
Manufacturers must also be able to adapt to changing supply chain demands. During the pandemic, restaurants shut down, leading to lower demands from the wholesale industry and higher demands from retailers. Flour manufacturers struggled to make the change over. Their packaging equipment was either/or, distributing flour into large restaurant and bakery-sized bags (50 pounds of more) or smaller retail packages (5 pounds). Only those manufacturers that were able to adapt their equipment to transfer production of 50-pound flour bags into smaller 5-pound bags were able to fulfill orders quickly enough to meet the ever-fluid supply chain demands.
Adaptability and transparency are the key to solving supply chain issues. Although supply chain complexity isn’t something you can solve on your own, you can handle it better with the right software and information.
- Challenging stock
Some stock is more challenging to manage than others. Items that must be kept refrigerated or stored at a particular temperature, caustic, potentially flammable, or those with an expiration date are all more difficult to manage in your warehouse than items which can be stored at any temperature for almost any duration.
Companies handling food items, chemicals, and ingredients will find their warehouse management needs differ greatly from those handling nonperishable items.
- Inventory management
Almost all companies struggle with good inventory management practices. Many still resort to manual stock-taking. Consider adding a barcode scanner to your warehouse management system to make stock-taking faster, easier, and less prone to mistakes.
Also consider the inventory method you’re using. Do you conduct annual or biannual inventory? Or do you manage your inventory on a rolling basis? Choose the best method for your business based on turnover, inventory size, and business need.
Staff Issues
- Lack of experienced staff
Nationwide, many warehouses are experiencing a staffing shortage. This lack of experienced staff has led to hiring workers who may be unfamiliar with warehouse terminology, methodology, or software. Training takes more time as inexperienced workers must learn the basics before they can be given harder tasks.
- Communication challenges
Managers also struggle with communication issues. It’s not just being heard, it’s being understood. Potential challenges include language barriers, communicating information across several shift changes, and ensuring that everyone shares a common understanding of the tasks needed in the warehouse.
Getting Started on Inventory Optimization
While the benefits of inventory optimization sound great, you are probably asking yourself the following question: How can I realistically optimize my inventory and gain all of these benefits?
Effective inventory optimization can be achieved by following the five strategies outlined below:
Analyze your current inventory situation. Take a look at your current and past sales, volumes, and delivery performances. Create a spreadsheet or report detailing your situation as best as you can.
Classify items into different categories. Create categories that make sense and can be handled with ease. Make sure you define a strategy for each product segment.
Calculate inventory forecasts according to each segment. Focus on each product segment and calculate your forecasts accordingly. At the end, you should have forecasts for each product category.
Revisit replenishment policies. In order to optimize costs, you must optimize the replenishment of your products. Create different replenishment policies according to each item segment (or product categories).
Collaborate with suppliers. Make sure you work closely with your suppliers to create a plan that guarantees your items will be received in a timely fashion and as low-cost as possible. This eliminates the need for last-minute (often late) orders.
Inventory optimization is a continuous process that requires constant adjusting and revisiting. Make sure you go over this list periodically to fine-tune your inventory optimization efforts and analyze your company’s performance. Inventory optimization is not a one-time occurrence. To reap the benefits, you must continually look for areas of improvement and make the necessary changes.
The Solution: Good Inventory Control Software
While not all problems can be solved by inventory control software, good inventory control software can go a long way toward helping you communicate with suppliers and vendors, manage stock rotation more efficiently, and ensure accurate stock counts. It can also shorten the ramp-up period for new team members by making it easy for even the most inexperienced staff to keep accurate stock counts. And lastly, if it is a cloud-based system, it can share information in real time with the ERP system and ensure good communications throughout the warehouse.
Ready to explore inventory control software? Emerald TC recommends Acumatica WMS for better warehouse management and Scanco barcode scanning software for faster, better, and more efficient warehouse and inventory management. Explore more software on our site.
Emerald TC
Emerald TC provides software and consulting for companies seeking to improve their productivity and solve common business problems. We can help you choose the right accounting software, ERP system, payroll, or other software for your needs. Contact us or call 678-456-6919 for more information.