Much has been said about inventory management, but it’s still not complete without a discussion of real-time inventory management.
Inventory is often proclaimed to be a necessary evil, especially in the retail business. Who would want to risk losing a customer due to product shortages? If they want it, you should have enough to sell. But the classic question has always been how much is enough.
To understand its implications, the first understanding one must have is that inventory costs are not just what you see in everyday life. They extend far beyond day-to-day costs in the form of extra money you need to keep the business running. Inventory is the number one cash eater.
What is real-time inventory management?
Real-time inventory management basically means managing inventory as it runs out. Much of this strategy relies on technology, so its upfront cost scares some skeptics.
The technology involved is basically RFID chips and barcodes. They keep track of all inventory going in and out of the store. The benefits of being able to do so can be many. All you need to do is make sure you have a few things in place. You will need to know:
How many units do I order?
How much time does the supplier need to fulfill this request?
At what point am I going to order?
Most retailers order with a time limit. They always seem to have enough of what is not in demand in the market.
It is important to understand the value that real-time information adds to a supply chain. You are not forecasting anything or relying on any guesswork.
Rather, you are reading the mind of the market and acting accordingly. At the same time, in addition to inventory costs, it would also reduce many storage and administrative costs, since you would not need a large warehouse or warehouse clerk.
How does it work
Reduce fixed costs: Fixed costs are a burden for the retailer. They drain profits. With the help of a real-time inventory management system, you can keep them to a minimum. You could make your organization much more agile by virtually eliminating the purchasing department. They will not need to forecast demand or place orders. Everything you need to have your suppliers ready; the system will do the rest. Also, since it is largely automated, the chances of error are much less. Machines are not as forgetful as humans.
It’s not unusual to get stuck with products that your customers no longer want. Demands change faster than you can imagine. Now imagine selling multiple variants of multiple products, you will surely be stuck with some unsold inventory. With real-time inventory management, you can gauge the pulse of the market by keeping track of what’s selling and when it needs to be ordered, thus keeping these costs to a minimum.
Eliminate stock breaks: Stockouts and shortages are the result of errors in forecasting demand. While most of the previous discussion was about reforming forecasting methods, real-time inventory management has taken on a new perspective. It eliminates the need to forecast and therefore eliminates all the errors associated with it. If demand runs fast, so does your order cycle. This is called supply chain flexibility.
Improve customer relationships: A recent study has shown that there are some “universal customer expectations” that the customer expects from every salesperson they deal with. These are the ultimate choice, the ultimate value at the lowest price. With the help of real-time inventory management, you can easily offer all three.
Simplify work processes: Real-time inventory management significantly reduces the error rate. Since much of the work is automated, there is less chance of error. In addition, all of its processes are based on facts and not forecast projections.
How to choose?
There are many options available on the market today. Every business is different and therefore by extension the inventory needs of each of them are also unique. Real-time inventory management helps any business.
Modularity: It is essential that the real-time inventory management solution you seek is modular. Modularity basically means the ability to choose the specific features you want instead of taking the whole package.
Modularity is so important because these inventory management systems are means of serving the interests of many organizations that have diverse business interests. You may not need half of your solution, but the other half can be invaluable to you. Therefore, modularity allows you to choose the solution that you think is best.
Ease of implementation: Inventory management systems are easier to acquire than to implement. Many of these systems are complex and require staff training, or sometimes you may need to hire new staff who are trained enough to handle this. So the choice is whether the system will save you enough money to offset the higher training costs and still be valuable. Don’t forget to consider the time value of money.
Integration: The ability to measure change gives the manager insight into what is working and what is not, and it is this ability that should be leveraged to assess the efficiency of the inventory management system.
Therefore, it is essential that the system integrates with accounting, human resources and other similar systems, which are generally used in an organization.
A very common mistake is to pull inventory reports out of the new system and continue with financial and other reports the old way. This gives an inaccurate view of how effectively materials, personnel, money, and other resources are used.
At the end
Big companies and small companies generally have an efficiency gap between them, and bigger players are better. It is imperative that a small business grow and prosper by adapting to gain a competitive advantage over smaller competitors.
Real-time inventory management is still a relatively unknown product. Unleash the potential of this powerful tool and gain a competitive advantage.
