To solve inventory control challenges, an inventory management software is imperative in providing an easy and effective solution, especially for manufacturers and distributors.
The business of distributing involves matching the incoming product from a supplier to the ordered and shipped volume. In an ideal world, this results in little stored inventory and perpetually filled customer orders with no stock outs.
Let us look at some components of successful inventory control for distributors.
What constitutes success and inventory control?
Firstly, successful inventory management where production or distribution is concerned is all about control. Inventory control is a part of operational success and seeks to ensure that at the front end, customer orders can always be filled in a timely manner resulting in increased satisfaction. There is a lot of work that occurs in the back end to achieve this objective. For things to be in control, the amount of stored inventory needs to be minimal; just enough for real and predicted customer orders but not so much that inventory is at risk of expiry or obsolescence prior to sale.
Correct stock levels
A distributor’s sole purpose, when boiled down to a single objective, is to provide a customer with a great product when they order it. Ensuring the correct amount of inventory is on hand is imperative. However, the distributor will be placed at serious risk if product is deliberately over-ordered to ensure orders can always be filled. Excess inventory in stock is associated with increased storage costs, risk of obsolescence or expiry and lost opportunity costs. Understanding what stock will be needed prior to customer orders is a very powerful tool for running a business. Predicting stock with a crystal ball would be great, but using an inventory management software is better. It allows you to forecast sales trends and customer orders with reasonable accuracy.
Product and shipping incentives
Operating on the forefoot rather than the back foot in business can save some serious coin. When a distributor must suddenly order more product to fulfil an unprecedented customer order, the shipping costs due to the expedited nature, can be quite inflated. If this scenario was a common occurrence, company profits would be slowly but surely eroded. When customer orders can be forecasted with or without an official signed order in place, orders can be placed with suppliers with reasonable confidence after which shipping can be conducted in an economical way. With knowledge of potential future orders, it is also possible to make informed decisions around bulk savings and incentives that may be offered from time to time, which could also be a financial advantage for the distributor.
Leases and lost opportunity costs
The more synchronised supply and demand is, the less inventory the distributor requires to store. This means smaller storage spaces are needed which inevitably results in savings. When money is tied up in stored, redundant goods, it is termed loss opportunity costs, where the ability to take advantage of other financial opportunities is no longer an option because the money with which to do it is not available.
In a situation of a stock out the risk is loss of future custom, as a customer may choose a more reliable supplier for subsequent orders. Likewise, reasonable and competitive prices are also a way of ensuring customer satisfaction. However, it is not sustainable when inventory requirements are consistently unforeseen and thus ordered with quick turnaround times and using expedited shipping options. The customer may be satisfied with fulfilled orders however the company cannot incessantly absorb these inflated costs, and they cannot be passed onto customer unless stipulated in a prior agreement.
The reason behind any business decision should be the financial health of the company and customer satisfaction and loyalty, both of which are inevitably intertwined.
These are a few components of inventory management which should be considered by distributors who desire inventory control and future success in their business. Take advantage of any help available such as software packages or support and training for better understanding. Successful inventory control is not out of reach!
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.