Gone are the days when ad-hocism worked while managing the inventory. As businesses, today, strive towards more profitability, preventing micro-leakages, and gaining greater visibility into inventory stocks is becoming the need of the hour. Ad Hoc methods of the past simply can’t keep up with the rising needs of modern businesses. Hence, streamlined inventory systems, today, are vital for businesses to maintain sustainability and stay ahead of the competition.
Top 12 objectives of inventory management
1. Increase productivity across your inventory management functions
More than 25% of factories have started adopting new-gen technologies to increase inventory productivity. An increase in productivity can have cascading effects on the entire factory operations across cost, turnaround times, and sales. Factories can start their journey toward increased productivity of inventory management in the following ways :
Setting up processes for tracking inventory across their inventory functions such as procurement, manufacturing, and dispatch
- Usage of tools and software to track inventory data
- Identifying key metrics and root causes for inefficiencies in inventory management across functions
- Setting targets for the key productivity metrics across your inventory functions
- Weekly or monthly analysis of your inventory productivity to identify room for improvement
2. Better Inventory tracking and visibility
Modern inventory management systems provide smart and real-time visibility into day-to-day inventory usage. This insight helps businesses derive smart insights into their inventory depletion. Intelligence about stock aging, stock levels, locations, and movements helps businesses predict future inventory needs and plan in advance. Stock usage visibility also helps decision-makers gain insight into the productivity levels of a particular unit. More than 75% of manufacturers struggle with adopting inventory visibility solutions, despite citing visibility as a key focus area.
Ultimately, these micro-insights help companies profit more from their inventory usage patterns due to better efficiency.
3. Safety stock: never going out of stock
As factories become more global, maintaining the right inventory buffers becomes imperative to limit stock-out situations. Reports suggest nearly 75% of factories face high uncertainties in supplier lead times. Such situations can hurt businesses in having the right inventory at the right places to maximize sales. One rule of thumb for efficient inventory management is to maintain 50% of your lead time demand as safety stock. Some factors that one can consider in defining their safety stock are :
- Supplier lead times
- Customer demand
- Accepted stock-out probabilities
- Fluctuations in any of the above
4. Demand forecasting of inventory – Anticipating future inventory needs.
Inventory planning and management across factory functions starts with a clear understanding of future inventory requirements. A fundamental starting point to nail inventory planning is forecasting of demand, across customer sales and consumptions during production. This helps in defining the right inventory levels across raw materials and finished goods. A recent market survey identified half of factories prioritising forecasting as a key AI investment.
5. Enhanced customer satisfaction
The primary motive behind the functions of inventory management is to keep customers satisfied, ensuring growing sales. Nearly a quarter of warehouse executives mentioned increased customer satisfaction as their top priority. Before attempting to increase customer satisfaction, factories, and warehouse executives must consider setting up inventory management systems to collect and track the following metrics :
- Fill-rate – to understand if customer orders are completely being fulfilled
- On-time – understanding the extent of delays in customer orders
- OTIF for stricter targets that combine both the above metrics
6. Real-time insights and alerts for seamless inventory management
Reporting and alerts form the foundation for all the functions of inventory management discussed in this article. Approximately 80% of manufacturers have plans to integrate dashboards for end-to-end visibility. With the increasing scale of technology, factories now have a wide variety of tools and solutions to start tracking the right data across inventory management functions. Once the systems are set in place to collect the right data, one can explore business intelligence tools to automate inventory reporting and alerts. A starting process flow can be :
Define the KPIs and metrics to be tracked
Work with ERP + business intelligence solutions to track and summarise inventory data
Assign factory and warehouse personnel to monitor the software closely
7. ABC analysis – Prioritising inventory based on value
A natural next step post reporting and alerts is to analyze opportunities for inventory optimization. Pareto’s law suggests that 20% of products contribute to 80% of sales, making it important to stock the right inventory. ABC analysis is a great starting point for factories looking to optimize inventory management functions. One can classify their inventory as follows :
- “A” class products that contribute 80% to revenue
- “B” class products that contribute 15% to revenue
- “C” class products that contribute 5% to revenue
With the classification, manufacturers can prioritize their inventory for “A” class products that tend to sell very quickly. The inventory team can then split their strategies to be different across categories to ensure efficient management.
8. FIFO/LIFO Application – Managing product flow
One key strategy for efficient inventory management is understanding the outflow of factory/ warehouse inventory. With the average manufacturer holding excess inventory, executives can take advantage of inventory management software to track batches of inventory across purchase and manufacturing. Such solutions can also help automate the assignment of inventory batches against sales and manufacturing, ensuring a streamlined process. This can be extremely beneficial to industries dealing with product shelf-life, reducing wastage by automatically prioritizing the batches with shelf-life risk.
9. Reduce stock waste
Excess stock can easily drain off profit as it shoots up storage costs and ties up capital. It is also likely to become obsolete due to overage, thus shooting up production costs.
Advanced inventory forecasting tools help businesses manage their stock ordering better, thus preventing overstocking and minimizing wastage.
With inventory wastage levels rising beyond $150 billion, maintaining stock levels based on data-driven decisions helps companies hit the perfect middle path between getting out of inventory and inventory overage.
10. Stock Replenishment
More than two-thirds of SMBs have cited supplier struggles. Modern Inventory management software provides the option of smart stock replenishment, whereby fresh stocks are automatically ordered when inventory levels for a particular SKU hit behind critical levels. This prevents the usual hassle of getting all the approvals and permissions when a critical inventory stock is about to get out of stock.
This also helps replace manual monitoring and redundant chain of command drastically reducing labor costs and shooting up profits.
11. Cost Control
All these above factors have a 360-degree impact on inventory working capital. The compounding effect of reduced storage costs, higher inventory turnover rates, reduced stock wastage, and optimum inventory levels improve cash flows needed to run the inventory. This frees up capital for innovation and other growth initiatives thus increasing the overall profit multifold.
12. Automate inventory management
With the recent incorporation of AI in inventory management systems, businesses have been able to automate their inventory processes from end to end. Nearly a third of all manufacturers have considered the adoption of AI within their factories. This process has started eliminating innocuous human errors. It not only pushes up overall efficiency but also frees up the valuable time of the managers, giving greater bang for the buck per employee in terms of revenue.
Conclusion
In today’s competitive market scenario, smart and effective management of inventory is not just a necessity but a tool for strategic advantage. For businesses today, investing in streamlining their inventory is not only about staying organized but also about making data-driven, intelligent, and smart decisions to stay ahead in the cut-throat competitive race today.
AI-based inventory management software like Procuzy is now making this entire process smooth. With end-to-end management modules, this software helps you transform the entire way you look at the way you manage your business.
Learn more about our inventory management software: https://www.procuzy.com/features/inventory-management
