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 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 products made and how they’re sold. However, all businesses carrying inventory share the same challenges in a new era of consumer real-time expectation.
It all comes down to data. Inventory management software that optimizes data also optimizes 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.
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 user interfaces need to be industry-specific (example: retail, distribution). Tailored interfaces can be designed specifically for customers enabling an intuitive experience making data easy to interpret by all stakeholders: stock personnel, inventory managers, purchasing, shipping and receiving, property, warehouse managers, production, etc.
Software can be configured to the desired inventory management method. Software providers consider all variables and configure systems to utilize best techniques to help achieve specific goals. Let’s review some of the different methods to 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 to 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 an October 2018 survey by Coresight Research and Celect, markdowns cost U.S. non-grocery retailers alone approximately $300 billion in revenues in 2018, which is 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 scene 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 who have mastered inventory control, you’ll notice themes like transparency, data integrity and automation. Today’s inventory management software can help take the guesswork out of inventory control and automate the process so that companies can focus not only on growing, but on gaining a competitive advantage.
Sixty percent of sales for American Packaging come from custom orders. That presents unique challenges. “Drilling into sales data is extremely important for us,” said Howard Edelman, Vice President of Marketing. “Now, if customers call and say, ‘I ordered this box from you so many months ago, but I don’t remember the dimensions,’ we can quickly view their sales history and have that information in moments.”
It wasn’t always this easy. Their old system couldn’t deliver the data they needed to answer customer questions and control their inventory. “We had a tremendous amount of inventory control problems with our old system,” explains Edelman. “At the time, we were probably 25 percent accurate in our warehouse, so we were taking inventory an average of three to four times a year.”
Today, using Prophet 21, American Packaging needs to conduct just one physical inventory a year. It takes approximately four hours, and they’re achieving 99% accuracy.
A Few Cool Hardware Stores uses 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 (new name for Epicor ERP) 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 in 2020 and beyond. 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 in 2020 and beyond. Learn more about Epicor solutions for inventory management.
