Does Inventory Management Affect Performance?

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It might be difficult to appreciate the affect inventory management software would have on your company if you have never used it. However, it is not so difficult to imagine the dire scenario of panicking when a supplier cannot fulfill an order resulting in you short delivering to a customer. Or perhaps the scenario of finding that there have been stockpiled items in the warehouse that are forgotten about, and now you have to answer to the big boss about the loss of income due to expiration of said items. The reality is that a range of dreaded scenarios resulting from inefficient stock control can indeed be avoided with the use of a good inventory management package and thus company performance can be optimized.

Here are some areas of company performance that are improved with the use of inventory management software.

Understanding of Inventory and Sales

Inventory management software is designed specifically for its purpose meaning that it affords its users the ability to have an acute knowledge of all aspects of the company’s inventory. This includes current stock levels and their storage and expiration, sales, and suppliers and lead-times. Having all this data accessible results in accurate decision-making around re-order levels and timeframes, which helps the company avoid situations of short-deliveries to their customers. One of the key x-factors of inventory management software resulting in accurate intel is its real-time sales and data feature. Whenever inventory is sold, stock levels can be updated without delay, resulting in a greater degree of confidence when making inventory-related decisions.

Cutting the Fat

A good understanding of processes and inventory levels means that not only is the company able to avoid negative outcomes but in fact they can go one step further and use the enhanced data for their gain. With a good understanding of sales, suppliers and inventory, it is possible for the company to identify areas of improvement where they can cut ordering lead-times down and increase turnaround, or perhaps they can order more in bulk resulting in reduced shipping costs. Identifying these areas is called lean manufacturing and is a great way to optimize company performance and reduce operational costs thereby increasing profit margins.


With good inventory control, the company can operate in a proactive manner rather than being reactive to customer demand. Understanding customer trends and what influences them will allow the company to forecast sales with a greater degree of confidence. Having the ability to forecast accurately results in less stock being required on hand for the ‘just-in-case’ eventuality.

Financial Impact

To the investors, company performance is indicative of profits and sales. One of the main components of a company that affects profits is the inventory, as inventory represents a cost to the company that is not recouped until a sale is made. Therefore, the more the inventory purchased is turned into a sale, the better the profit and thus the company performance. Adding to this, any inventory not turned into a sale and simply stored is not only a loss of income, but also represents a liability to the company due to incurred storage costs and the risk of perishing while being stored. Understanding the company’s inventory needs will allow the relationship between inventory ordered and sales to be optimized, which will reduce inventory storage costs and increase profit margins. This level of control will certainly bode well when the company’s performance is being reviewed.

Perceived Performance

This level of enhanced stock control resulting from good inventory management software will impact on company performance criteria such as sales and profit, however the impact on the customer needs to be considered. When the company is able to fulfill a customer order on time every time, the perception to the customer, despite what difficulties to achieve this are present in the background, is that the company is in control and performing well. This enhanced customer experience and perception will go a long way in increasing sales, which again, results in increased profit margins.

There are many components of company performance to consider when looking to enhance operational management. Addressing inventory management and utilizing software such as Unleashed will have a massive impact on turning inventory into sales, reducing redundant inventory and the need to keep a large supply on-hand. The result of all of this will be happy investors or directors and a more substantial bottom line.

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Melanie - Unleashed Software

Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.

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