11 Benefits of Great Inventory Management

As a retailer, you have to take the utmost care to track your inventory levels at all times. In fact, it's impossible to be a successful retailer without good inventory management.

This goes to the heart of your business, which is to supply goods to your customers when they want to buy it from you. If you want to be a retailer, you have to keep the items in stock that you wish to sell to customers—and then you have to manage that stock effectively. Which means that solid inventory management is so crucial to your success.

In this article we will consider eleven ways that effective inventory management will benefit your business. We will also look at ways you can use inventory management software in your organisation to gain these benefits.

Benefit 1: Fewer missed sales

When you don't have access to accurate inventory level numbers on a continuous basis, you run the risk of missing sales because you cannot meet customer demand.

It's really impossible to track all your orders and inventory with just the use of your perception or memory. It's really not good enough to have a walk around the warehouse when you're deciding on what to reorder.

For effective inventory management, you need access to updated, regular inventory reports which will enable you to:

• See at a glance which products are running low.
• Look at sales figures and compare it to your inventory levels to determine your top sellers.
• Place orders with your suppliers and vendors to replenish your stock before they run out.

When you use inventory management software, the technology will allow you to set inventory control figures to manage stock effectively. For example, you could stipulate minimum stock levels for different items.

The software will alert you when certain product levels fall below that line in time for your to reorder. In this way, you won't sell out of a product and miss out on potential sales.

Benefit 2: Better invested cash

Holding stock is very capital intensive. A company only has limited cash flow, so you have to invest your cash with precision. As an inventory manager, you should only buy enough stock that you would reasonably expect to sell within a given time frame.

You have to keep enough stock on hand to meet your sales requirements without hitting stock-outs. At the same time, you don't want to keep a warehouse full of products that don't sell—which will increase your stock holding costs.

The answer is to get accurate inventory reports on a regular basis. In this way you will know instantly which products don't sell well. This allows you to offer these products on sale to clear up the warehouse space for better selling items.

In this way you will be able to free up some cash to buy new products or invest in other areas of your business, such as marketing.

Benefit 3: More accurate reporting

How do you determine the actual inventory holding costs for your stock? If you use cost of sale accounting, these numbers are crucial to determine the actual asset value of a product at the point of sale.

The answer is regular, up-to-date product reports. You need accurate cost values for each product to determine what the real profit margin is on each sale. When those figures are added to your balance sheet and income statements, management will then be empowered to  make more informed strategic decisions for the company.

Benefit 4: Early problem detection

Proper inventory management means that you have to know exactly what is going on in the warehouse. This requires constant vigilance and access to accurate inventory numbers.

As an inventory manager, you have to reconcile the numbers from the sales department with actual purchases that are processed by the warehouse.

This is something that needs to be managed by a dedicated inventory management system. If you still use manual stock taking and inventory tracking systems, you won’t be able to do this reconciliation on a daily basis.

Which means it could only be months after the fact that you first find out that something seriously has gone wrong in your warehouse and inventory management processes.

For example, when you run an annual cycle count, you find out that staff has been skipping a certain crucial warehouse management step. Or you could discover that your reorder point formula is unreliable and caused you to overstock on certain items. Or one of the sales staff members have been filling out the forms incorrectly and thereby misrepresenting sales orders.

These mistakes could end up costing you a lot of money in the long run. You need to stamp out these errors when they occur. Which means you need to seriously consider upgrading your inventory management to dedicated software platforms.

Benefit 5: Happier customers

When you make serious business of your inventory management, you will end up with happier customers.

For example, inventory reports can be used to accurately answer customer queries. If a customer hasn't received their order within a certain timeframe, you could check the reports to see if the item was actually shipped out to them.

If their order or item has been lost, you need to be able to see at a glance if a replacement product is available in the warehouse to be sent out to the customer. Meanwhile, regular inventory reports will alert you as soon as an incorrect shipment was processed.

This is another area where you would benefit tremendously from inventory management software that is integrated with your order fulfilment systems. The technology will automatically adjust inventory levels as purchase orders are run through the fulfilment workflows.

The system will be able to clear sales of out of stock products to customers if replacement products have already been ordered and are on their way to your warehouse locations.

When your systems and processes work in sync, you will be able to furnish your customers with accurate order fulfilment and inventory information. This engenders trust and puts you ahead of the competition.

Benefit 6: Simple reordering process

Efficient inventory management will also smooth out the product reordering process. Since you will always know exactly how much stock you have available in the warehouse, you will be able to make informed purchasing decisions.

Many inventory managers have to physically walk through their warehouse and check the numbers of each SKU—often counting the number of items still available on the shelves—to determine if they should purchase new stock.

This requires a lot of work, and you have to be meticulous and methodical to make this type of system work. Fortunately, there is a better way than counting each product by hand.

When you use proper warehouse management technology, you will be able to automate the decision-making behind recording stock. For example, you could set replenishing limits on stock items that will automatically inform you to replenish stock to meet customer demand. The program will also be able to show you if a certain item is already on order with the supplier.

The software will be able to analyse the history of a certain supplier and inform you of any long lead items from them on the products you need. In this way you will be able to compensate for any delays in the delivery process. The program will also show you if there has been irregular deliveries from that supplier in the past.

In this way you will be able to take control of the entire reordering process and manage it more efficiently.

Benefit 7: Reduced theft and loss

There are many ways that products can be spoiled or even lost in the warehouse. A product could be damaged in transit, or there could even be theft. But how would you know if items are not available for sale, if you don't monitor stock levels on a regular basis?

The answer to managing damaged or stolen stock, is to keep accurate records of your inventory levels at all times. This will help you to identify issues with your stock when they occur.

This is also a strong deterrent against theft. You might not want to believe that your trusted staff members could ever steal stock. Nevertheless, you don't want to tempt them to do something wrong.

If your team members know that inventory levels are always closely monitored, they won’t even try to walk away with stock. But this means that you have to implement the right technology to maintain  accurate inventory records that are continually updated.

Benefit 8: Data integrity

One of the hallmarks of a well-run business is that it uses and distributes accurate information—both to staff members and to its customers.

Data integrity in your company is only possible if you implement se information systems that are closely integrated and sync all data company-wide. In other words, your order fulfilment systems need to be synced to your inventory and warehouse management systems. Your barcode scanners also have to share information with your point of sale units.

In this way all departments have access to the most up-to-date information and your staff can be confident that the inventory levels displayed on the system are always accurate and current.

The result is that they will rely on the system information to perform their daily tasks. Since everyone shares the same information, all your data will be cleaner and more accurate. This will boost collaboration among your staff members and improve efficiency company-wide.

Benefit 9: Reduced warehousing costs

Accurate inventory numbers will simplify the job of your picking, packing and shipping staff because they don't have to run around the warehouse in search of lost inventory items to ship.

The key is to maintain accurate warehouse records. When the computer says an item is in stock, it is in stock. And if the computer says the item is located in a certain place, it can be found in the exact warehouse and shelf where it has been recorded.

The result is that all orders will be processed quicker and more accurately. This makes better use of company resources and increases the overall productivity of your inventory and shipping departments.

Benefit 10: More efficient cycle counts

When you have a good inventory management system in place, you will always have access to accurate inventory level information. So when it comes time to do periodic cycle counts, the process will be more efficient and run quicker.

The goal of the cycle count would be simply to confirm that the inventory data already registered on the system are correct, instead of trying to log new data into the system. This saves a lot of time and makes inventory control much simpler and more effective.

Benefit 11: Manage sales peaks effectively

There will always be fluctuations in order volumes. Anything can happen to cause a particular product to pick up in the market. For example, some products are seasonal and trade much better during certain periods of the year. Or a product could suddenly gain popularity due to someone using it on social media or it being endorsed by a celebrity.

When sales volumes suddenly shoot through the roof for a certain product, you have to be equipped to meet the added demand. That is why you need to have inventory management systems in place that are both flexible and scalable.

This requires your inventory stock data to be current and accurate. If the computer says that there is enough stock of a certain product available to meet demand, those items better be available in the warehouse.

If you advertise that you have enough stock available to meet demand and then you’re unable to make good on your promise, you will damage your brand image.

Coupled with good demand forecasting, solid inventory management will enable you to meet any surge in product demand. When you know how much stock you have of an item and the demand suddenly shoots up, you will be able to make informed decisions with regards to stock levels and reordering products.

Conclusion

Effective inventory control is crucial for any retailer. This becomes even more important as your business grows and expands to multiple channels and shopping locations.

Getting your inventory management right is one of the foundations of running a successful retail organisation—and will bring massive rewards in the long run.

In this article we looked at several benefits that come from proper inventory management. All of the benefits outlined in this article are attainable with the use of good inventory management software. The bottom line is that as a retailer, you have to keep accurate track of your stock—and the right tools will enable you to achieve this goal.

Proper inventory management is a daunting task for any business. This becomes even more so when a company grows and has to manage multiple warehouses at the same time.

In the past, inventory management required frequent and time-consuming stock taking periods during which all the inventory levels for all products were painstakingly recorded and checked against previous records.

Businesses didn't have a choice but go through this regular grind, since any effective retail organisation has to stay on top of inventory levels at all times.

But there comes a time where manually driven inventory controls just don't cut it anymore. At that point, you need to seriously consider investing in proper inventory management software. The technology is able to manage all your stock control and inventory management functions. This will streamline operations and improve your company's bottom line.

Implementing a proper inventory control system is both time-consuming and can be expensive. But as we've shown with the eleven benefits described above, the benefits far outweigh the costs of such a shift.