Every business owner has dreams of a company that will run as smoothly as a well-oiled machine. Though managing it may be challenging, it’s not impossible. Systemizing the processes involved in operating your business can fast track you to the road of success.

But you want your business to thrive in the competitive market and grow, so it’s got to be profitable. And that means finding the perfect balance between volatile customer demands and managing supply.

This is where inventory optimization comes into the equation.

To begin with, you shouldn’t confuse inventory management with inventory optimization.

Inventory management is a vital part of the supply chain. The inventory management process deals with ordering, managing, using, and storing a company’s inventory. As most businesses have additional storage options and warehouses outside the main plant, an effective inventory management system is essential. Knowing where your stock is at any given time and tracking stock quantities so that you have enough products to manage inventory levels are all part of the trade.

On the other hand, inventory optimization, also referred to as stock optimization, is about remaining profitable. It entails reordering the right products at the right time in the right quantities to match demand. So it’s pretty clear that an optimized inventory system relies on real-time data that is gathered frequently from various data points.

Businesses now face the challenge of managing the delicate balance between supply and demand.

Not having enough stock leads to missing out on sales opportunities. It not only disappoints customers but also tarnishes a brand’s image.

At the same time, you don’t want to tie up too much capital in a product that won’t sell or your business doesn’t need. Unwanted stocks also increase storage and management costs.

So inaccurate demand forecasting and estimated replenishment can negatively influence the cost-effectiveness of your business and damage the bottom line.

Surprisingly, even today, 48% don’t use inventory management tools and techniques.

Business owners already know that manual processes are inefficient and resource-intensive. Almost a decade ago, many relied on Excel for their inventory needs. But with increasing competitive pressures and the rise of online marketplaces, this is no longer a viable option.

But with the aid of inventory optimization software, this task is getting much easier to handle. It offers holistic inventory capabilities, from managing inventory in real-time to accurately forecasting demand. More importantly, comprehensive IT inventory optimization solutions help automate processes and improve overall operational efficiency, especially through mobile WMS options. According to Motorola, 67% of warehouses plan to use mobile devices to manage inventory. After all, mobile is the future of everything.

The question now is, do you have any inventory optimization models in mind?

According to Deloitte, 79% of businesses with supply chain inventory optimization strategies can exhibit a higher revenue growth than their competitors. Wouldn’t it be great if you could be a part of this statistic?

Well, we’ve got an inventory optimization guide to help you get started.

1. Analyze consumer demand

As a business, you must have data about market conditions and your consumers. Understand the factors that influence consumer spending habits, such as current trends, economic conditions, and the time of year.

2. Anticipate change

Trends change, and the economy can take a turn for the worse. The value of your inventory can drop. This is when you can influence demand.

With the help of your economic model, you should be able to make inventory trade-off decisions. That means understanding the costs of holding onto inventory for different types of items. Working alongside your sales and marketing teams, you can then work on offering promotions and discounts to clear off articles that will lose more value the longer you hold on to them.

3. Set reordering parameters

To avoid stock-outs of products, you need to define reordering parameters clearly. This requires setting minimum and maximum levels. So when the minimum amount is reached, replenishment orders are generated in order to restock the item.

Needless to say, reordering parameters are the main determinants of your inventory outcomes. However, they need to be revised from time to time. To optimize this aspect of stock optimization, you must:

  • Select appropriate minimum/maximum stocking levels
  • Consider all economic costs, including holding inventory, replenishing stock, the loss incurred by stock-outs, etc.
  • Acknowledge warehouse constraints such as maximum bin capacity and storage capacity.

4. Be vigilant and responsive to consumer demand

Businesses that maintain a proactive stance are often the ones that set themselves ahead of the competition. With the help of predictive inventory management systems, you can prepare your business to meet customer expectations.

But that means having accurate data about:

  • How much stock is currently available, how much is on reorder, and when the replenishment stock will be received?
  • Alternate similar products that can be recommended in case an SKU is not immediately available.
  • The minimum retail price so that there is enough flexibility within the profit margin. Prices can be altered periodically to create a buying hype.

The above information makes it considerably easier for team members to manage frontline sales. Being able to provide inter-dependent data in real-time improves workflows and makes the business more efficient. And it all starts with managing inventory to ensure your business has the goods that are in demand to sell at a profitable price.

By leveraging the best practices and utilizing inventory planning software, you’ll have the capabilities to manage your business objectives efficiently. In fact, companies claim to have 10-25% fewer stock-outs, spend 33-66% less resource time on managing inventory, and a 10-25% drop in administrative costs for replenishing inventory.

Parting thoughts

Optimizing inventory can help businesses determine how much stock needs to be reordered and when. It allows brands to remain competitive by taking into consideration seasonal demands and promotional campaigns.

By staying on top of the supply and demand variables, you’ll have the required products in your warehouse. And that’s the key to being profitable and competitive. Moreover, your customers will be happy … and so will you.

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