Smart inventory management optimizes profits by efficiently managing stock and meeting customer demand with modern software.
Inventory takes up a lot of space and comes in many forms. These forms include raw materials, components, work-in-progress and finished products. An effective inventory management system is necessary for a business to optimize profitability. Because regardless of what your physical inventory system looks like, one thing is clear – it all represents money.
Inventory management is the process of sourcing, storing, and selling inventory. A simple concept, yet, the modern-day supply chain has made it incredibly complex. The definition of inventory management varies depending on the types of inventory and how they're sold. Even within the same industry, there can be many different inventory management techniques at play. However, all businesses carrying inventory share the same challenges in a new era of supply chain management and customer demand for real-time inventory tracking.
It all comes down to data. A good inventory management software program optimizes data and cash flow, forecasts future demand, and drives growth. Without effective inventory management, companies can't maintain oversight of data. Instead, they're stuck in a cycle of playing catch-up where the idea of growth seems out of reach.
So how do companies dig out of the mess of daily inventory issues? Modern software applications are helping businesses get organized and access data through common mobile devices.
We'll cover some commonly asked questions about inventory management, including offering definitions of the terms inventory and inventory management to lay a common framework.
By inventory, we are referring to the stock of goods that a company holds for future sale, including raw materials, works in progress, and finished goods.
Inventory isn't just sandals in stock at the shoe store; it also refers to the materials needed to produce the sandals, those sandals at their various stages of completion in factories, and those sandals in storage in warehouses and distribution centers, and those on the shelf in retail brick and mortar stores.
The inventory management process involves ordering, storing, and using inventory in a cost-efficient way to minimize overhead and maximize profits. It's a critical part of the supply chain, having a major impact on a company's profitability.
With an inventory management plan, the goal is to keep as little stock on hand as possible—to not only reduce storage and logistics costs and not tie up capital—but also have enough to meet customer demand without interruption. Rapid order fulfillment, especially in the Age of Amazon, is critical to customer satisfaction.
Many different aspects of inventory management are at play, including:
With so many moving parts, inventory management can be an arduous process. But it is, nonetheless, vital for every business. Effective inventory management can reduce costs, improve customer retention and overall satisfaction, and increase the bottom line.
The main purpose of inventory management is to make sure your company has the optimal amount of inventory on hand: enough to meet customer (ever-changing) demand, with minimal overstocking or understocking.
This can be a difficult tightrope to walk. Too much inventory will tie up liquidity and be a drain on resources; too little will lead to lost sales, and worse: lost customers.
When determining the best approach for your business, you should consider:
As outlined above, different industries require unique configurations to ensure effective inventory management. Beware of the one-size-fits-all.
Core inventory management software applies to various industries and user interfaces need to be industry-specific (i.e., retail). Tailored interfaces can be designed specifically for customers enabling an intuitive experience and making data easy to access and interpret by all stakeholders: stock personnel, inventory managers, purchasing, shipping and receiving, property managers, warehouse managers, production, and so on.
Software can be configured to the desired inventory management method. Software providers consider all variables and configure systems to utilize the best techniques to help achieve specific goals. Let's review some of the different methods of managing inventory:
Just-in-time is a method where companies order and receive inventory for production and sales purposes on an as-needed basis. It arranges orders from suppliers in direct connection with production schedules. The method reduces dead stock from inventory overages. By decreasing waste, JIT can increase efficiency.
MRP relies on sales records to enable accurate forecasting for inventory needs by breaking down inventory requirements into planning periods so that production is timely to avoid excess inventory levels and carrying costs. MRP is now applicable to almost every industry including the service industry.
The Economic order quantity is the number of units a company should add to inventory with each order to minimize the total costs of inventory. Inventory is continually monitored and a fixed quantity is ordered when inventory levels reach a determined reorder point. This ensures instant replenishment at appropriate levels to minimize overages and shortages.
Days sales of inventory (DSI) refers to the average time in days that a company takes to turn its inventory (including work-in-progress goods) into sales. Some companies have fast-moving products and some can hold onto inventory longer, so DSI values vary greatly and should be compared only to same-sector companies. For example, the DSI calculated for a building material vendor and a retailer such as Target will have different meanings.
Vendor Managed Inventory (VMI) shifts some of the inventory management burden from retailers and other businesses to their suppliers. For example, by sharing inventory data between a retailer and a product distributor, the distributor can take responsibility for keeping stores stocked at agreed-upon inventory levels.
Regardless of the inventory management method, smart and powerful inventory management software has the ability to optimize data to flush out inventory's hidden costs.
According to a survey by Coresight Research and Celect, markdowns cost U.S. non-grocery retailers alone approximately $300 billion in revenues in 2018 alone, which was equivalent to 12% of their sales. Many companies are aware of the burden of hidden inventory costs but continue to battle having inventory to meet demand against the cost of excessive inventory. So, what are hidden costs, and which can be minimized?
All of these work behind the scenes to slow and prevent growth. Fortunately, the sophistication of software applications has come a long way in just the past couple of years. And, if utilized, they can act like kryptonite to hidden costs.
If you talk to companies that have mastered inventory control, you'll notice themes like transparency, data access and integrity, and automation. More sophisticated supply chains may employ a periodic inventory system (vs perpetual inventory system) for financial reporting purposes. With a periodic system, the physical count of goods is done at specific (tax-beneficial) periods.
Today's inventory management software can help take the guesswork out of inventory control. It provides ready access to data to improve inventory planning and broader supply chain visibility, and leverages AI for better buyer insights.
The rise of Amazon has presented a challenging opportunity for traditional manufacturers and distributors like Jergens Industrial Supply (JIS).
Established in 1960, JIS has used Epicor technologies to bring their business into the 21st century and meet the demands of its growing customer base of millennials. This cohort expects an ordering experience as fast and friction-free as an Amazon checkout.
Working with Epicor, JIS achieved a miraculous, push-button transformation.
JIS and Epicor added IoT buttons in Jergens’ warehouses and integrated them with Epicor Prophet 21 software. Each time the button is pushed, it represents hundred of million dollars saved. The button has increased Jergen’s productivity by 30% and their business reputation immeasurably.
“With its JIS Express buttons, JIS has been able to reach a whole new customer demographic,” says Matt Schron, General Manager at Jergens Industrial Supply.
“We box out competitors by giving customers a reason to keep giving JIS their business—a smart, ‘sticky,’ just-in-time inventory management solution that helps to offer the ultimate convenience and can scale as they grow.”
A Few Cool Hardware Stores use Epicor retail software to better forecast inventory. “Inventory drives sales, so to be able to decrease total inventory dollars while having revenue growth is the ultimate end goal, and we're getting there with Epicor,” said Friedman. “The Epicor Eagle Inventory Planner solution has helped us decrease our inventory dollars and improve our in-stock position. And, we're continuing to improve that position by following the Epicor and industry best practices. To date, we've been able to free up $200,000 in cash flow and significantly altered our inventory management processes. On top of that, we've seen our revenue grow by 5.2 percent.”
Prior to 2016, A.L.L. Roofing Materials had an antiquated system: “It was very clumsy...It wasn't conducive to growth at all or keeping up with the competition,” said Michelle Cassady, A.L.L. Roofing Materials' general manager. The slow speed of their customer service and a high number of incorrect markups put A.L.L. at a disadvantage.
The tide shifted once A.L.L. decided to invest in Epicor BisTrack inventory management software, which is designed to leverage data. Team members were able to get answers within seconds through real-time data. They were able to instantly get visibility on inventory and make quick adjustments. Cycle counts, special orders, and stock orders were improved. Digital documentation meant they didn't have to chase paper trails. “It's all right there at my fingertips,” said Nick Posey, purchasing manager at A.L.L. The software helped them make improvements across the board– “The system has made the whole team more connected,” said Posey.
A.C. Brothers used to face issues with carrying extra inventory or falling short. “A lack of proper inventory management meant that the carrying cost was unpredictable and would sometimes be very high. Other times, delivery of orders got delayed-leading to customer dissatisfaction,” said Managing Director, Gaurav Chandra.
Today, Kinetic is helping them take control. “Everyone is using the same data, which means we have a far better understanding of company performance, and the utilization of resources has improved. Material planning is better now, too. It is far more precise for local procurement enabling the timely delivery of customer orders. Our customers and suppliers are happier, and we are able to make quicker decisions for growth.”
Modern-day inventory management systems mitigate risk in every direction and improve all facets of the business.
Data integrity and mobility are vital to the success of inventory management now and in the future. The key is to find an enterprise resource planning provider who understands industry-specific challenges and how smart software will best integrate into a company's current program.
Jergens Industrial Supply (JIS) found success integrating Epicor Prophet 21 software and experienced 30% improved productivity representing millions of dollars in cost savings. Representing 300 top industrial supply manufacturers in the U.S., JIS was looking to compete with its largest competitors and cater to a growing millennial customer base demanding a technology-enabled customer experience. JIS's new software allowed them to become a digital disruptor by taking just-in-time inventory to a whole new level. “JIS has been able to reach a whole new customer demographic, “ explained Matt Schron, general manager at Jergens.
It can be difficult for companies to focus on growing their business when they have to continually focus on the day-to-day work, however smart inventory management software is allowing companies to break the stagnant cycle, drive growth and get ahead.
Get equipped with modern tools that will help you drive growth. Learn more about Epicor solutions for inventory management.
As we look into the future, inventory management will be growing more sophisticated and complex. Inventory management systems, warehouse management systems, and distribution will become further streamlined, leveraging Artificial Intelligence (AI), Machine Learning (ML), greater robotic automation, and greater strides from on-premise to cloud-based software.
Epicor can help you future-proof your business, meeting the challenges of the 2020s and beyond. Connect with our experts for a free consult.