Here we break down the inventory management strategies of six successful manufacturers and retailers around the globe. While most of our examples are large multinational companies, your SME can employ many of the same tactics and principles.
These examples show there isn’t a benchmark inventory management strategy that trumps all others. Instead, you’ll need to do your homework to choose the right inventory management system to suit your budget, your business needs and the size of your company.
1. Samsung’s inventory management strategy
Samsung is one of the world’s largest manufacturers, meaning managing their inventory is an enormous and complex task.
Samsung has implemented a number of initiatives to secure its supply by fostering long-term relationships, growth and stability with key suppliers and customers. By offering support to its partner companies through innovation, communication and corporate social responsibility, Samsung has been able to ensure sustainability and security in its supply chain – which is seen as one of its leading competitive advantages in the marketplace.
Samsung has a specific set of best practices it follows to manage its supply chain. It uses an Advanced Planning and Scheduling (APS) system that automates the management of materials and production – and can adapt to changes – to optimise production levels.
Since 2004 Samsung has also been using the Lean Six Sigma method, which is a management technique aiming at sustained improvement of manufacturing processes through statistical & financial analysis.
The five key steps of Lean Six Sigma are define, measure, analyse, improve and control – usually referred to as DMAIC. Samsung uses this method to identify and deal with problem processes – eliminating waste and defects by removing any use of resources that does not create value for the end customer.
2. Amazon’s inventory management strategy
More than 50% of the products sold on Amazon Marketplace are from third-party businesses, which is why Vendor Managed Inventory (VMI) is the ideal inventory management strategy for this global eCommerce giant.
VMI works well for Amazon’s inventory because it puts the responsibility on the supplier to maintain the right inventory levels in Amazon’s warehouse. This allows Amazon to concentrate on other aspects of the transaction, like shipping, returns and processing.
Other features of Amazon’s inventory management include:
- Inventory tags
For suppliers and vendors, there is an internal inventory management system with products broken down across six inventory ‘tags’:
- Available – what is ready and in stock for customers
- Inbound – stock that is in transit
- Unfulfillable – stock at a fulfilment warehouse, but not able to be sold for a specific reason
- Reserved – stock that is being received, has already been ordered, or is in transit to another warehouse
- Fee preview – the estimated cost for the management of the item when sold
- Fulfilled by – whether the supplier or Amazon will be fulfilling the order
- Trajectory alerts
The Amazon inventory management system has a ‘trajectory alert’ that automatically sends reorder alerts based on the volume of sales on days specified by the vendor – meaning the supplier is able to factor in lead times.
- Options for order distribution
Suppliers have two options for the distribution of orders that have been placed:
- Fulfilment by Amazon (FBA): Amazon instructs the business to send the product, while managing the fulfilment through their various warehouse locations where stock is kept.
- Fulfilment by supplier: The supplier takes care of distribution, self-managing their supply chain and order delivery.
3. Ikea’s inventory management strategy
Ikea has over 450 stores around the world – and each store has over 9,500 products – so keeping track of stock is no small task.
Some key aspects of how Ikea manages its supply chain – from suppliers to the shop floor – are:
- Supplier relationships: Ikea creates close and often long-term relationships with suppliers – which means they can secure quality materials at lower prices.
- IWAY for supplier management: IWAY is Ikea’s code of conduct for suppliers, setting environmental and social standards for any business that supplies good or services. This is one aspect of supply overseen by over 40 Ikea trading service offices around the world.
- Minimum/maximum settings: Ikea uses an inventory management process called ‘minimum/maximum settings’ to determine when and what quantity of a product should be reordered:
- Minimum settings: the minimum quantity of a product available before processing a reorder
- Maximum settings: the maximum quantity of a product to be ordered at one time
- Separation of high- and low-flow goods: Ikea uses separate facilities to manage their high- and low-flow inventory. Automated technology is used to store and retrieve products in high demand, while products in low-flow warehousing are manually processed.
- Daily restocking: The warehouse of each store is stocked each night – meaning that minimum and maximum settings are based on what is sold on a daily basis and avoiding stockouts and overstocking.
- Cost-per-touch philosophy: Ikea encourages self-service on the basis that the more hands that touch a product, the more the supply chain costs. For instance, at each store larger flat-packed goods are found just before the checkouts so customers can take goods home immediately instead of goods being handled by multiple warehousing and delivery staff – which carries extra costs.
- Flat-packing: Ikea famously flat-packs goods where possible, which means better portability for customers, and also lower transport and holding costs for their business.
- Innovations to meet consumer trends: Ikea has undergone a transformation since 2018 so it can fulfil online demand and have greater efficiencies between physical stores and eCommerce. As part of this change some of Ikea’s out-of-town stores have been repurposed as eCommerce fulfilment centres and smaller stores are being opened in city centres.
4. Dell’s inventory management strategy
Dell’s inventory management strategy is based around the Just in Time (JIT) model – and Dell was one of the first tech giants to use this system.
The main thrust of JIT is to ensure that there is the right amount of inventory to allow just enough time for production and delivery. In other words, it’s about minimising the need for unnecessary storage of stock and reducing costs along the supply chain.
Some key aspects of Dell’s JIT strategy are:
- Materials for production are received only when they are needed
- Demand forecasting must be accurate
- Stock is not held for more than six days to reduce storage costs
- Waste is eliminated where possible – for instance, waste caused by defects and overproduction
Having reliable suppliers supports this strategy, so Dell has long-term relationships with businesses around the world that provide materials and components. These suppliers follow a set of rules Dell has set out to ensure they support its streamlined production and delivery model, including:
- Manufacturers are advised to have premises near Dell’s factory
- Suppliers work with logistics and shipping providers who deliver components and customer orders
- Vendor managed inventory (VMI) is used to manage supply. Dell provides an internal website to communicate with its suppliers, giving them real-time data on stock in the supply chain, and key information about demand.
These features are suited to Dell’s business model, which involves selling goods on to retailers, as well as allowing customers to purchase goods directly from Dell itself – including customised computers.
5. Gap’s inventory management strategy
Gap Inc. has more than 3,000 stores worldwide, with a majority of those located in North America. But it has also just experienced one of its busiest eCommerce periods ever in response to the worldwide pandemic, all while going through a multitude of internal changes.
Gap has moved from traditional point-of-sale technology and now runs on Apple’s iOS products, with iPads replacing cash registers and scatter guns in use across the physical stores.
These are key for tracking inventory and enhance the in-store customer experience. Customers can now order a product if it is not available in the store, and Gap’s inventory system – which tracks more than half a million SKUs – can work out whether it will be more efficient to ship from another retail store or from a warehouse.
Gap is also responding to changing customer expectations by having agile inventory that can be sourced quickly and delivered fast. To achieve this, Gap has set up highly automated facilities to handle inventory that are capable of processing large amounts of stock. One of these opened in 2020 and is able to process a million items each day.
6. Countdown NZ’s inventory management strategy
In 2020, New Zealand grocery chain Countdown launched an app called Compass – their first real-time sales app – which allows suppliers and partners to monitor sales of their products in any Countdown supermarket nationwide.
Countdown’s system provides a range of information, including:
- Stock on hand
- Stock on order
- Stock in transit
- Price information
- Presentation levels
Countdown’s system pulls together historical data to predict sales, and if actual sales are above or below expectations, it alerts the supplier so they can identify any issues and take action.
This is especially useful when there is a sudden increase in demand for a product that requires a restock immediately – without this system, suppliers would not have enough lead time to make additional stock available.
Countdown reports that this new inventory system has been effective: this new technology provides suppliers with information so they can alter their call cycles to ensure they deliver to the right stores at the right time for better on-shelf availability.
Inventory management strategies for SMEs
The businesses we’ve looked at demonstrate a key point: there isn’t a one-size-fits-all system or ideology for effective inventory management. Instead, different businesses and industries use different systems to cater to their specific needs.
And while it’s all well and good for large multinational operators to have sophisticated inventory management strategies – many of them developed in-house – it’s not always so easy for SMEs, which tend to have limited resources to invest in their inventory systems.
For this reason, SMEs often find that cloud-based inventory software on a subscription model suits best. With a SaaS system, you can:
- Scale easily as your business grows and contracts
- Sync your inventory management with other software, like accounting packages
- Access real-time data on the go
- Draw on historic data to make more accurate forecasts
SaaS inventory software allows for greater automation, efficiency and availability of real-time information – and overall, this will give you more control over your inventory and reduce risks of problems like stockouts.
Choosing the right inventory management system and software for your business is not always straightforward. It’s essential to do your homework to find the best inventory software – and integrations – to suit your business needs.