Best Practices To Optimize Inventory Management

While many companies incorporate some inventory management practices, they don't always have an optimized process.

Online retailers can have a very hard time fulfilling orders to meet their customer's demands because large volumes of inventory can be difficult to manage or plan for. Everything from raw material delays, supply chain issues, and demand fluctuations can cause inventory shortages or surpluses which can lead to unnecessary costs.

Understanding inventory is something every e-commerce business needs to master and manage. The good news is, with the right tools you can optimize and better manage your inventory. In this blog, we will cover what inventory management and optimization are and how your business can take the necessary steps to start the optimization process.  

What is Inventory Management and Optimization?

Inventory optimization is the process of balancing just enough inventory to meet your customer's demands. This ensures that logistics costs stay low by eliminating issues such as running out of stock, backorders, and overstocking.

Inventory optimization should be a goal for every e-commerce company. Having control of inventory can have a major impact on the bottom line. Many tools, processes, and technologies exist to help efficiently manage stock in real-time and forecast demand.

4 Benefits of Inventory Management Optimization

Optimizing your supply chain can be challenging for many reasons such as raw material shortages, geopolitical changes, global supply chain shortages, and other factors.

It’s important to remember, that there's technology and resources in place that can help you prepare for these unpredictable situations should your business have to deal with them.

Here are some benefits of inventory management optimization and how businesses can meet customer demands and keep overall logistics costs low.

Reduced operational costs

Having inventory management and optimization software can reduce costs associated with storage and warehousing.

Companies with high carrying costs and poor inventory flow can greatly benefit from inventory optimization by identifying which products are not selling and which ones need to be restocked. Inventory optimization can also help determine which warehouses should have more inventory based on customer demand to ultimately cut down on sitting inventory.

Increased customer satisfaction

Customer satisfaction is critical for any e-commerce business. Optimized inventory is a must to achieve high customer satisfaction because businesses are able to fulfill orders immediately as they are placed and items can quickly make their way to the buyer.

Overstocking can look like an attractive option but is not always in a business's best interest. If the product does not perform well you will likely have to eat the cost or have less space in your warehouse. By optimizing inventory, you can have more insights into which warehouses to keep stocked. This will allow you to consistently meet demand no matter where orders are placed and avoid inventory issues — minimizing storage costs.

Improved delivery time

Optimizing inventory makes it easier to track product distribution through the supply chain. This enables businesses to accurately stock warehouse locations to target the ones with higher demands, making sure orders can be quickly sent out and delivered on time.

It can be difficult to track inventory, especially since it's always moving from warehouse to warehouse. A tech-enabled, optimized, and automated inventory strategy can provide deep insights into how your shipping strategy is performing — giving you a competitive edge over similar products in the market.

Optimized inventory

Understanding precisely which SKUs are in stock in your warehouses and distribution centers can make inventory accounting, meeting customer demand, generating profits, and improving delivery times more efficient.

Optimizing inventory can enable you to improve cash flow, maximize warehouse storage, and quickly and consistently deliver your products to customers.

5 Inventory Management Best Practices and Techniques

Inventory optimization is a critical component in running a successful e-commerce business. There are multiple strategies and best practices that companies of all sizes can utilize. Here are just a few that you should consider.

Implement demand forecasting

Demand forecasting can be very useful, businesses need to have historical order data to analyze their sales trends. This empowers businesses to make data-driven estimations about future product demand and make decisions that improve customer experience.

Automate Replenishment

Processing your inventory manually can cost your business time and money. It's strongly recommended for businesses to automate replenishment on inventory management by using inventory management software. Only some parameters will be manually managed while the management software will take care of the rest, saving you time.

Distribute inventory across fulfillment centers

Centralized inventory might be easier for e-commerce businesses to manage, but it's better to keep inventory stocked closer to higher-demand locations. Products that are distributed across warehouses strategically, tend to have more efficient delivery times and reduced shipping costs.

If your business uses inventory management software, you can see how each product is performing at every warehouse through historical order data. Enabling you to make data-driven decisions on how much stock needs to be kept at each warehouse based on the location demands.

Implement an inventory management tool

Choosing the right inventory management software can help you get a complete view of orders and inventory across all warehouses, sales channels, and customers in one place.

With a budget and strategy in place, businesses can choose from many inventory management solutions to help them track their inventory and supply chain in real-time.

Some tools can do more than track orders and stock. They can predict demand, automate orders, and suggest new strategies based on current market trends and customer behavior.

Track the entire supply chain

In the past, supply chains consisted of multiple elements that worked independently of each other. Now supply chains are deeply connected with real-time data analytics — giving critical information on stock levels, locations, and accurate delivery times.

With new technologies such as barcode/QR code scanners and various tracking devices, many logistics problems have been resolved and have become less common. Having real-time data has enabled businesses to make quick informed decisions and cut costs across the entire supply chain, leading to higher ROI and customer satisfaction.

Challenges to Optimizing Inventory Management

Managing and optimizing your inventory can be difficult. The results of doing so will impact your entire business in all the best ways. Here are some reasons why inventory management and optimization can be challenging.

Changing demand

Inventory levels are always changing based on customer demand. Not having enough stock means losing customers to competitors. Having too much stock means your product is not selling well. Having a balanced inventory can help you maximize profits while cutting warehousing costs. The difficult part is striking the right balance.

Outdated or inaccurate data

Inventory data is critical to understanding precisely how much stock is moving between warehouses and how many orders are coming in. With this data you are able to make important decisions such as which products to restock or which products to cut down on. Real-time data can be a game-changer when it comes to optimizing your inventory management. If businesses work with inaccurate data they could be spending extra resources to resolve problems caused by the bad data.

Scalability

When a business grows quickly and sales volumes increase significantly, it's important to equip the business with inventory management software that can scale with demand. Manual management is inefficient and will end up costing much more in the long run.

Inventory Optimization Case Study

A leading fashion and performance brand had no inventory management software or strategy in place and needed to solve multiple supply chain problems to increase revenue and reduce costs. Here's how Sigma helped them optimize their inventory management.

• Customer was able to scenario model and predict demand for their overseas factories up to one year in advance.
• Sigma gave the customer access to live data enabling them to identify current inventory gaps in their retail stores, distribution centers, and warehouses.
• Sigma gave a weekly analysis of sales data and inventory levels.

Inventory Management Optimization With Sigma

Sigma enables businesses of all sizes to gain data-driven insights using analytics to ensure the production, inventory, and distribution of products resulting in maximized revenue, improved efficiencies, and cost reductions throughout the supply chain.

Through a uniquely scalable and familiar spreadsheet interface, Sigma empowers anyone to explore, analyze, and visualize billions of rows of live data across the entire supply chain. Reducing shipping costs, optimizing inventory management, and identifying inefficiencies within the supply chain are all possible with Sigma.

Sigma also makes it possible for external clients who understand their data to capitalize on it via spreadsheet granularity and scale from an embedded view without sacrificing security. Enabling customers to expose inventory and product/shipment data to their clients so they can analyze every shipment, scenario model, and create strategies where they can save money and proactively plan for capacity.

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