- Harkirat Ahluwalia
Inventory Management Benefits
Updated: Oct 21, 2021
Inventory Management is the process through which inventory is maintained in order to meet the demand of a company's goods. A great inventory management system will tell a company exactly how many items they have on hand so that they can prevent shortages or surpluses, both of which can incur costs. Shortages will cause delays within the supply chain as goods and/or raw materials will not be delivered on time. Surpluses on the other hand will lead to extra storage costs. Having the correct amount of inventory available can help ensure that the supply chain process runs evenly.
The benefits of inventory management are not just limited to cost savings however. Here are two of the most important inventory management benefits within supply chain.
Increases Inventory Accuracy to Reduce Inventory Shrinkage/Inventory Write-Downs
Not only does inventory accuracy help prevent the costly pitfalls of shortages and surpluses, but having inventory accuracy can help a company to stay organized. Using inventory management systems can allow warehouse workers to find out exactly where items are located so that they can pick them up in an efficient and timely manner. Customers will also be happier as they will have products delivered to them quickly for products that they know are in stock. Most notably, inventory accuracy through a stable inventory management tracking system can help make sure items are not lost, damaged, stolen or expired. On average, a food and beverage company that is earning between $50-$500 million per year would lose between $500,000 to $1.5 million due to inventory shrinkage/inventory write-downs (inventory that could be lost, stolen or obsolete).
Through an effective supply chain performance management software, companies can save millions by being able to measure and analyze inventory shrinkage. Tools like excel spreadsheets may require paid professionals to manually enter data every time there is shrinkage which is very difficult to do, especially if the company is not a start-up. In the food and beverage industry, this is almost impossible as it is highly impractical for stores to keep track of what happens to food. Typically, ERP systems and RDFI tags can be used to keep track of inventory, but in the food and beverage industry where the majority of inventory shrinkage is due to theft (mostly from employees) or expired items, these systems in it of itself are no good. Information without context, explanation, analysis and a plan for action is useless. This is the reason that supply chain performance management is needed. The Owl separates itself from typical supply chain performance management software since it not only gives performance metrics of raw data on inventory that is possible to track, but offers support from supply chain experts that can help uncover hidden costs related to any particular industry.
Keeps Track of Demand and Availability of Goods to Increase Inventory Turnover
Knowing the demand and availability of goods through inventory management not only helps reduce costs but actually helps increase profits by increasing a company's inventory turnover ratio. The goal is to get an inventory turnover of between 5 and 10, which means that a company possesses the correct amount of inventory for the amount of demand their products receive. Inventory turnover can be increased through inventory management in a multitude of ways. For one, knowing and working to find ways to reduce a company's lead times can directly increase inventory turnover since having slower lead times can cause inventory to be stored longer than it should. Also, the number one reason that companies have low inventory turnover is because of expired items. If an item is expired and a company is wasting money keeping it in stock then that is money that a company could be spending stocking another item instead.
Inventory management tracking systems can help one to uncover data on lead times and expired goods, but a supply chain performance management software is needed to analyze this data further. Through data analytics, a software system can help a company realize factors as to why lead times are slow, or help one understand what the value of total inventory is that is expired. ABC Inventory Management is another example of how inventory can be broken down into categories based on their consumption value to figure out which products a company can and should try to control.
Although an effective inventory management tracking system through ERP's or RDFI systems are great at providing raw data, a supply chain performance management system is needed in order to convert raw inventory data into meaningful performance metrics such as consumption rate, shelf life, inventory turnover, and more. Then analyzing and comparing these metrics against trends related to a company and its industry to come up with a plan is necessary to actually succeed in improving a company's inventory management by reducing write-offs and increasing turnover. The only way to accomplish this is by having a full purpose supply chain solution with a comprehensive software, support from experts with years of experience and a benchmarking system that allows a company to compare its performance with others that are of the same size and industry.
Click the button below to speak to an expert for less than 30 minutes and find out more about how The Owl Solutions provides all three of these things so that your company can fully reap the benefits of effective inventory management.