The pandemic has created a moderate disruption for small businesses. It is hard to predict when demand will spike for a specific product, as consumers fight over merchandise to leave empty shelves. Roughly 56% of retailers experienced this disruption first-hand, requiring them to restock more products in warehouses to have backup supplies. Unfortunately, restocking a lot of inventory also creates unique problems.
Purchasing too much of one item that suddenly isn’t in demand causes your warehouse to be filled with stock that cannot be moved. You have to deeply discount the products just to make space or donate the items. In either case, your warehouse takes a large hit to its potential profits.
On the other hand, purchasing too few products when sales demand increases may lead to constantly running out of stock. Your sales team then deals with angry customers over product delays. Many of the customers may simply cancel the order and go to a competitor for the same product. In fact, about seven out of 10 online shoppers admit that they will shop elsewhere instead of waiting.
To deal with this issue, inventory management systems help to balance stock levels. You end up having enough products at the right times in the appropriate quantities. Read on to learn why this warehouse system is so important.
Why Are Inventory Management Systems Vital?
Inventory management practices help track warehouse resources. This method allows you to gather and extrapolate data regarding the operations of your warehouse such as inventory levels, transaction history, and product information. Then it automatically performs calculations of the data so you can generate reports regarding product demand, order sales, and shipments.
Correctly forecasting when demand rises and falls allows you to order the right number of products at a given sales period. The inventory management system tracks the entire movement of the product through the supply chain. You can better predict sales curves, manage production lines from manufacturers, and adjust inventory levels. Then, you carry enough stock to meet demand without overstocking or running out too quickly.
Which Inventory Management Technique Should You Choose?
It’s no surprise that many small businesses are just getting involved with inventory management systems. Only 17% of businesses use this type of system. That said, 46% don’t even have any type of automated system to track products and shipments. Once you decide on adopting inventory management, you must determine what method to use that best aligns with your operations. Then, you can decide on the best software to track product levels.
Two of the most common methods include cross docking and ABC analysis.
Cross Docking
Cross docking involves sending products directly to final destinations without receiving them at warehouses and stocking shelves. Instead, the products go directly to retailers or consumers. This process helps to reduce warehouse overhead storage and transportation costs. Some e-commerce businesses use this arrangement with manufacturers, or they rely on fulfilment centres to fill orders.
This method works well for businesses that carry limited product lines. It’s also ideal for businesses that possess a good relationship with manufacturers where they can successfully manage production lines to align with customer demands. Having automated inventory management software may help with tracking shipments so they do not become lost during the long trip from manufacturer to consumer.
There are many advantages to this method. It may work well with larger pieces of merchandise, such as furniture or appliances, that can take too much valuable space in a warehouse. Your business may decide to have certain products be cross-docked, while others are stocked normally at a smaller warehouse location.
ABC Analysis
ABC analysis focuses on product sales. This method divides the products into categories based on previous transaction history, the impact on your profits, and warehouse carrying costs. You then carry more stock on the products that sell well, and reduce inventory levels on the products that are slow movers.
ABC analysis relies on a simple 80/20 rule. You want roughly 80% of your sales coming from 20% of your products. Focusing on these products allows for faster turnover ratios, minimizing obsolete products and waste.
If your operations are too focused on stocking as many different products as possible to please the widest customer base, you run the risk of constantly running out of a particular item. There is only so much space in a warehouse to hold inventory. If demand rises too much, you are left with missed sales orders and angry customers. Instead, by switching to the ABC analysis method, you increase potential revenue by focusing your marketing on only the 20% of products that always do well in sales. You may be able to better predict demand and manage inventory levels for the long term.
Strategies for Balanced Inventory Management
Extra technologies and techniques may help balance your product inventory levels in addition to using ABC analysis, the cross-docking method, and inventory management software. Automated warehouse tools such as barcode scanners allow you to track products as they move around the warehouse. This feature prevents products from becoming incorrectly placed in the wrong picking zones.
Modifying the warehouse layout may also help balance inventory. You may invest in better shelves and racking systems to increase warehouse space. You could also adopt zone picking techniques to rotate stock so that more popular products are at the front of the warehouse.
The emergence of third-party logistics (3PLs) companies has changed the warehouse storage landscape. Many companies offer warehousing and distribution centres for companies on a tight budget that cannot afford to have a full warehouse location. They may also offer inventory management systems and software as part of their services, allowing you to easily track product inventory.
Sometimes, predicting customer demand is not always easy, especially when experiencing a major disruption such as the pandemic. The demand could become so high that you are finding it difficult to store products. Other times, you may store too much inventory as you are left with higher warehouse carrying costs. Inventory management systems and software allow you to better track product levels and transaction history to stock the right level of products in your warehouse.
For further information on effective inventory management, read the accompanying resource.
Author bio: Mariana Vieth is Director of Marketing at WSI, a leading third-party logistics provider that specializes in fulfillment, chemical warehousing, transloading, transportation, and more. Having the 17th-largest 3PL network in the United States, spanning more than 15 million square feet, WSI delivers tailored end-to-end supply chain solutions to customers who seek to increase efficiency, shorten lead times, deliver more reliable performance, and minimize costs.