What Factors Affect Inventory Management?
Inventory management is much more than counting products you have in your warehouse. It is a multi-faceted business task involving record-keeping systems, supply chain management, and stock control. Inventory management is like a clock with many cogs that must work together for the clock to work. To build a successful inventory management strategy, you must first understand the factors that affect this complex task.
Consumer Demand
Consumer demand is the lifeblood of inventory management. Take this example: If your customers buy huge quantities of soap but minimal amounts of shampoo, it wouldn’t make sense to stock equal amounts of both. In this scenario, you would likely face a shortage of soap, excess inventory of shampoo, or both. To avoid these negative outcomes – and their financial effects on your business – you have to track customer demands and product sales, and order inventory accordingly.
Amount of Inventory
It’s crucial to stock the right amount of inventory. Ordering too much puts you at risk of getting stuck with stock you’ll have to sell at a discount or discard altogether. Overstock can lead to major cash flow problems, with gaps in the budget due to dropping large amounts of capital on inventory at once. Ordering too little and you may compromise customer service by failing to have requested items available. To master this careful balance, you need an inventory management system that accurately predicts consumer demand based on data gathered form past sales. When you can forecast consumer demand for a product, you can pinpoint the ideal amount to order to avoid overstock and stockout.
Inventory Price
The price of your inventory is much more than just the amount of capital it took to move the product from the manufacturer to your warehouse. You must also take into account the price of carrying costs, storage facilities, warehouse employees, and variable factors such as shortage costs. To figure out your inventory price, use the economic order quantity (EOQ) formula. You can calculate the EOQ (the quantity of items a company needs in inventory for each order to maximize cost efficiency). Use your EOQ as part of inventory management to monitor inventory levels and calculate the appropriate reorder amount.
Management Tools
Inventory management often involves tools – barcode scanners and printers, mobile computers, and specialized software to keep track and make sense of numbers. The tools your company uses to count products as they move from place to place within the supply chain are vital to making management more efficient. The right tools can boost employee productivity and eliminate monotonous manual tasks. Your employees will be free to focus their time and energy on other aspects of business instead of counting and recounting inventory. The right hardware-software combination can make sense of data, turning numbers into important projections for the future.
Software Systems
Software implementations can significantly improve your ability to forecast demand and stock your shelves accordingly. The right inventory management software can enable you to keep your warehouse organized, order optimal amounts of product, and keep track of your past successes and failures. Your software can decide how successful your inventory management efforts are at keeping your business above its bottom line. Without help from advanced business software, your team has almost no chance of successfully tackling inventory management.
Management Solution Customization
No two businesses are identical. No two software solutions should be either. For optimized inventory management, you need a customized software package tailored for your business’s individual needs. This is the only way to ensure consistent inventory management success, now and far into the future.
