The two critical steps to streamlined inventory management optimization. Inventory optimization enables a business to leverage the power of higher service rates and sales on the one hand and reduced stock levels and costs on the other. The net result for the business is a dramatically improved bottom line, enhanced efficiency and greater adaptability.
Typically a company can expect to see up to a 10% improvement on working capital and up to a 20% improvement of unrealized revenue as a result of streamlining their inventory management system effectively (Genpact, 2013). So, for example, if a business was holding on to 1 million dollars on inventory and had a service rate of 60%, by refining and improving their inventory management system the business could look to lower the cost of inventory to around 700,000 dollars and raise their customer service fulfillment rate to the 90% range.
Streamlining is all about transforming or eliminating unnecessary and inefficient strategies and systems in the flow of inventory down the supply chain. Anywhere there is inefficiency along the supply chain – whether it is in under or over forecasting of demand, poor warehouse management, ineffective communication or simply using unreliable suppliers – the productivity and performance of the business takes a nosedive.
Poor inventory management often leads the business down a slippery slope of snowballing costs, breakdowns in communication missing customer service targets as well as over-stock and under stock issues that result in lost revenue and cash flow crises. All of these issues can either be eliminated altogether or at least mitigated to within manageable levels by putting a sleek, integrated and powerful inventory management system in place – such as Unleashed!
A streamlined inventory management system has two key components in place: Automation and Integration.
In the bid to cut down on costs and veer away from the perceived complexity of implementing software, many small businesses still rely solely on manual stocktakes and spreadsheets to drive their inventory management processes. The problem with this approach is that inconsistencies and errors tend to always occur. This is because the inventory levels depicted on the spreadsheet and what is actually the case in real-time, on the ground, are out of alignment.
Shift away from ‘slow’, unreliable data
Reliance on ‘slow’ information means process managers cannot order effectively. Inventory levels will therefore either be critically low as a result of failing to order required inventory in time – which causes stock-outs and missed sales – or they will be bloated, with a surplus of slow-moving and unnecessary inventory clogging up warehousing. This dampers cash flow, raises storage and handling costs, as well as puts goods at increased risk of damage, theft and obsolescence. In short, manual inventory is time-consuming, error prone and ineffective.
Smarter solutions = slimmer inventory, lower costs and boosted profitability
A cloud based inventory management software system enables automation of reporting to guide the order to delivery process for businesses. This effectively allows a supply chain to slim down and operate smarter and more strategically (for example through ongoing refinement of safety stock requirements). Low and high inventory points can be set alerting process managers the instant stock levels are approaching levels below or above optimum. This ensures that re-supply orders are sent in on time and the goods received will be better aligned with demand.
Labor and time-intensive stock takes can also be reduced in both frequency and importance because with the ability to track, trace and account for every item of inventory in real-time, the need for constant stock taking is made redundant. This allows the business to deploy its workforce with greater impact and efficiency.
Finally, with regards to carrying out strategic tasks such as demand forecasting and setting customer service targets for the year, managers can operate off accurate data with a detailed appreciation of the business’ inventory. This is what shifts a business from operating reactively off the back foot, to proactively driving their business forward towards increased growth and profitability.
Inventory management software when integrated with the back office and accounting systems of a business allows for more effective planning, predictable execution of strategies to best meet customer service goals as well as a significant reduction of the labor costs and errors linked with manual reconciliation.
Why integration is key
The hallmarks of a great integration between the back office processes and accounting, with a business’ inventory management system, are:
- Access to real-time, accurate data
- Adaptability to new and existing systems and processes
- Transparency to users across departments and ease of use
When a business is able to integrate its inventory management system with its back office and accounting systems it can expect to enjoy a number of key benefits, the first of which is optimization of its inventory levels.
Benefits of integration
When all the functions and processes in the supply chain are aligned and driven by real-time, accurate information then inventory levels will be optimized. This is because all departments – sales, purchasing, planning and finance – have access to the same, current data. What’s more, any changes at any point in the supply chain are instantly recorded and updated across all functions. This means that everyone is always operating off the same page – literally.
Accurate financial reporting is also achievable through integration. This information is extremely important to the business owners, investors as well as the relevant government offices. Inventory is a stated asset on the books, which means it is essential that the recorded value on the accounting statements accurately match the physical count of inventory on hand. All of this is easily achievable by implementing a cloud-based inventory management solution and integrating it with your back office and accounting programs – easy to do with Unleashed’s native Xero and QuickBooks integrations.
The Net Result
When a business is able to automate the critical functions of its inventory management system as well as integrate all key departments and processes in the supply chain then it stands to greatly enhance the accuracy of its inventory levels. This in turn leads to the ability to plan, prepare and execute a proactive and profitable strategy for business success in an increasingly competitive and dynamic marketplace.
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.