Best practices of inventory management and visibility

It’s difficult to envision a supply chain that is agile enough to handle a sudden fluctuation from suppliers or consumers, let alone one that could meet countless changes and disruptions brought upon by the pandemic. The new world emerging must account for consumers’ digital preferences, increased buy-online-pick-up-in-store behaviors and unusually high demand spikes for certain goods. There are also considerable delivery delays from clogged pipelines, overwhelmed carrier services, mandatory closures and decreased available work staff.

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In order to meet the expectations of omnichannel shopping patterns, unprecedented accuracy is required to track supply, demand and availability in a single cache. This is imperative to provide consistent information across the many channels of promise that require the same view of constantly updated data. Every touchpoint of the supply chain lifecycle and the order process needs to be in sync, which makes inventory visibility the first place to invest to achieve bottom-line business objectives and consistent customer experiences. By having a unified, real-time view, a business will never miss a sales opportunity because of hidden inventory or overpromise on stock that is not available.

Objectives of inventory technology solutions

The primary objective of inventory management technology is to track and utilize inventory in a way that balances business objectives with customer service requirements. In order to optimize a business’ financial and operational health, any technology solution that is selected for an implementation must effectively extend to, and integrate with, existing solutions. For external stakeholders, the solution must empower the business to go above and beyond to deliver the highest level of customer service. With a trusted inventory management system in place, you’ll be able to produce internal value by reducing out-of-stocks, lost margins from markdowns and expedited shipping, and excess inventory carrying costs.

Operational – Whether it’s raw materials, components, work-in-progress, or finished products, inventory should be readily available to support production and sales across all channels. Sufficient inventory allows you to fulfill orders, keep sales promises, and meet customer expectations. Care for that inventory – including minimizing theft and loss, reducing spoilage and damage, and ensuring quality of inventory for production or sale – is also a core operational objective. These basic operations also require better visibility to on-hand inventory levels, safety stock management, and their network’s overall picture of inventory for greater flexibility when making decisions for the business, logistics teams, partners, third-party sellers and customers.

To reach these operational objectives, businesses need real-time inventory visibility that is transparent and accurate to help track and monitor the status, location, and health of their inventory, wherever it is across the supply chain.

Financial – Businesses strive to minimize the cost of goods sold while ensuring high quality products. For businesses in the manufacturing, wholesale and retail sectors, working capital investment in inventory can be significant, representing the company’s single largest investment. Companies seek to control and manage three main types of inventory costs: order costs, stock-out related costs, and carrying costs.

Companies must balance demands with the proper amount of inventory, keeping the lowest possible inventory on-hand and avoiding over-stocking. They forecast demand so they can optimize their supplier order processes, maintain just-in-time inventory, minimize obsolete stock and ultimately reduce inventory storage or warehousing costs.

Goods and materials are constantly flowing out of a business’ inventory and warehouses to production and customers – while a steady stream of returns or re-shipments are coming back in. Proper handling and tracking of these goods and materials is an essential contributor to a business’ financial security.

Sales – Inventory also supports sales and revenue, further emphasizing its direct impact on the bottom line. Inventory management plays a key role in providing the sales, marketing, and purchasing/product development teams with accurate visibility into sales patterns. The data around current and future demands, matched against current and future supply is critical to inform strategies around pricing and placement of the inventory itself.

Technology – Building a more robust, modern technology stack with inventory visibility tools can enhance capabilities and streamline processes that greatly elevate performance while merging disparate data sources. Most organizations are too reliant on outdated and static ERP systems, restricting their ability to establish central inventory visibility – or to connect inventory management to the broader supply chain, logistics, third-party sellers, order management and/or fulfillment parts of the business. This technology stack must also be scalable enough to confidently handle peak seasons, when millions of inventory queries and supply/demand changes happen in a single day. Any page errors or outages would dramatically impact sales and brand loyalty.

Inventory management strategic investments

Inventory management services are maturing rapidly to keep up with growing business requirements. There are a variety of strategic investments that may be made depending on your organization’s goals. Let’s review the top two:

Promising – With the boom of e-commerce as a preferred shopping channel, businesses are leveraging a promising engine to surface a reliable delivery date at every stage of the digital commerce journey, from search to the product details page to checkout. By investing in a promising engine that sits on top of an accurate inventory picture, customers can confidently be driven to sales conversions. The system helps shoppers understand all of the options available to obtain desired inventory in the way that is most convenient from discovery to delivery. The Amazon effect has driven the need for convenience, immediacy, transparency, and personalization. Businesses must deliver confidence, choice, and clarity throughout the order journey. This establishment of trust can be done through updates on accurate delivery estimates while moving through the order journey, providing narrow pickup and delivery estimates, surfacing when out-of-stock items are back in stock, clear and upfront displays of backorder items or low quantity remaining inventory, buy-online-pick-up-in-store locations and dates/times, and even specific dates/times for services such as installation. These are just a few examples of how the emotional intent of the shopper has become a core influence on making or breaking shopping with a company ever again. Rules-based or AI solutions can balance the business objectives of speed of delivery and cost to the business.

Inventory exposure – Setting accurate omnichannel safety stock is a fine balancing act between having too much or too little inventory set aside. This also requires consideration of the age of the inventory as it grows closer to expiration, end of season, or markdown. When set effectively, inventory safety stock positively contributes to core business objectives of maximizing sales by exposing more store inventory online, while ensuring high service levels by limiting cancellations. The biggest challenge is that there are many factors that need to be considered when determining the optimal amount of safety stock to apply to meet your business objectives. It’s no surprise that managing the most granular levels of SKU-location safety stocks, having to remember all of the rules around events, supply types, categories, departments and classes (just to name a few) is a pain point that requires guidance from AI to understand how rules and safety stock changes can impact the business’ objectives. Dynamic safety stock will maximize not only the productivity of the inventory, but also the people who spend hundreds of hours setting and reviewing the rules.

Challenges associated with inventory management

Inventory management has a variety of challenges, including:

Supply chain complexity – Most larger businesses, and in particular global businesses, have an increasingly complex supply chain that may be expanding their reliance on suppliers and partners. They face increasing disruptions and risk, and are under cost, compliance and other pressures. This creates a more complex environment in which to implement inventory management technologies, and many organizations struggle to reach optimal inventory management processes, as well as achieve broad or deep inventory visibility. With steady growth, it is clear that systems lacking harmonized visibility into inventory across locations, geographies, business units, suppliers and partners will not be able to keep up.

Customer and product complexity – Products and inventories are growing in scope and complexity. Products are becoming more sophisticated, involving more components or service/delivery inputs, and requiring greater care and control in handling and shipping. In addition, customers are accustomed to a level of gratification and service delivered by large online retailers. These factors have driven up inventory size and demands for more accurate and efficient inventory management.

Change and personnel management – No matter how much automation or technology underpins inventory management, people will always play a critical role. And people can be resistant to change and limited in their knowledge or experience, an often-discussed topic in inventory and warehouse management. Personnel management and change management, which involves getting people to adopt new best practices and technologies, should never be overlooked as a challenge. It is imperative that previously constrained personnel are able to quickly develop new features to meet market and business needs. With the right training and technologies, aided by AI and intuitive user experiences, change is possible – and the benefits of that change make it necessary and inevitable.

Lack of inventory visibility – Many of the challenges of modern inventory management are rooted in a lack of visibility into inventory across locations and across the business. In many homegrown solutions, this is apparent in their system limitations and typical overnight batch updates. In an age when businesses are over-run with data, companies have a difficult time connecting and correlating data from across the organization and supply chain. This is the result of disconnected ERPs and homegrown systems, often cobbled together through acquisitions and partnerships. These disparate inventory management technologies and platforms lead to multiple versions of what should be a singular picture.

Data management – Organizations also struggle with data management, specifically in turning data into intelligence and insights on demand, inventory and logistics, and applying that data to decision making and action.

These challenges stand out amidst a litany of others which include: demand forecasting, demand planning, inventory auditing, inventory analytics, tracking, disconnect with order management, inventory loss, risk of over-stocking, poorly defined or executed processes, and highly manual and error-prone tasks.

Benefits and advantages of inventory management

Executing best practices in inventory management, and leveraging inventory visibility and AI technologies to improve inventory management, can have impacts across the supply chain and business such as:

Underpinning profitability – As inventory accounts for a significant percentage of working capital at manufacturing, distribution and retail companies, improving and establishing solid inventory management practices has a direct impact on the bottom line. In fact, few areas of the business can have such an impact. Not only does inventory management directly impact the cost of goods sold and support sales strategy, every dollar saved in inventory costs drops straight to the bottom line. Inventory management can help eliminate stockouts and lost sale opportunities, reduce or eliminate inventory write-offs and losses, remove barriers to holding costs, and aid in quick and accurate auditing.

Quality inventory for customer satisfaction – Whether raw material or component inputs to a product, or inventory managed for sales, the care-taking role of inventory management directly impacts the quality and freshness of the product sold. Inventory costs are a key component of overall costs and thus impact the price to the customer. And inventory management must be running smoothly to ensure items are in stock and delivered on time and in full to customers as promised. Every improvement in inventory management flows directly to the customer experience

Optimizing supply chain management – There is no optimal supply chain management without inventory management; there is no optimal supply chain visibility without inventory visibility. For B2B companies, inventory management is critical to streamline warehouse operations and ensure the flow of raw materials and components. For retail and distribution companies, inventory management is the business. To reduce product costs, speed fulfillment and delight customers you must continuously improve the inventory management process.

Augmenting existing Enterprise Resource Planning (ERP) – Best practices in inventory management, and specifically inventory visibility and order management technologies, can augment a company’s existing ERP solutions. A solution can connect data from across the supply chain and organization to provide centralized visibility and insights into potential disruptions and opportunities. Optimal inventory management practices can make the organization more efficient – and inventory visibility and management solutions can provide a quick source of data and intelligence, enabling the business to be more resilient and agile.

Great strides have been made in inventory fulfillment systems to meet the customers’ rising expectations. Inventory management software is a critical foundation of omnichannel fulfillment and one of the advancements you can adopt to immediately improve the customer experience, protect your bottom line and help grow your business.

Source: ibm.com