Inventory management is all about having the correct things on hand at the right time to meet consumer demand while keeping costs under control and waste and loss to a minimum. Businesses with best-in-class inventory management techniques don’t guess how much stock to acquire, and they maintain a consistent flow of raw materials, work-in-process items, and finished goods traveling from manufacturing to the customer via a variety of distribution channels.
Yet no one stays at the top of their class by resting on their laurels. Businesses must remain on top of inventory management trends, understand the causes behind them, and decide if it is better to be an early adopter – or let someone else sort out the kinks.
What Is Inventory Management?
Inventory management is the process of obtaining, holding, selling, or using four types of inventories: raw materials, works in progress (WIP), finished items, and maintenance, repair, and operations (MRO) stock.
4 Main Inventory Types
- Raw materials: This category comprises nonperishable materials such as sand, wood, and wool, as well as fresh fruits, vegetables, cereals, and meats used in the production of processed foods.
- Work in progress: WIPs are finished goods that are not yet ready to market, such as sheets of glass, window frames, fabric, or flour.
- Finished goods: Finished goods are items that are ready to sell, such as a window, suit coat, or loaf of bread. Finished goods can be intermediate items bound for another manufacturer, such as fabric bound for a clothes manufacturer or bread bound for a sandwich shop, or consumer goods bound for a retailer or direct-to-consumer (D2C) sale.
- Maintenance, repair, and operations: MRO items are items required to keep the production line going, such as tools or spare parts, or consumables used to transport products, such as paint or packing.
All businesses, particularly those in inventory-intensive industries like manufacturing, retail, and food service, must avoid tying up more cash than necessary in inventory while minimizing waste and loss. Inventory models are used by successful businesses to accomplish this.
What is the importance of inventory models in managing inventory?
An inventory model is a technique that a company employs to find the best way to create its items. The inventory model or models in use control areas such as how frequently to order raw materials or MRO stock with the goal of not having too much or too little on hand, how to manage and store products awaiting production or travel, and how to fill customer orders quickly and accurately. Industry, any issues around the production lifecycle, and whatever model leaders believe will best maximize the investment in goods and raw materials are all factors to consider when choosing a model.
Understanding inventory models will assist organizations in maximizing resources, managing costs, and delivering high-quality goods to consumers on time, and this is the first step toward effective inventory management. This is because each model has a unique technique for assisting leaders in determining how much stock to have on hand. Companies with more complicated production and supply chain processes, for example, balance inventory using methods such as just-in-time (JIT) and materials requirement planning (MRP). Common models include economic order quantity (EOQ), economic production quantity (EPQ), and days sales of inventory (DSI).
While smaller firms use spreadsheets to maintain inventory, larger corporations benefit from either specialized enterprise resource planning (ERP) software or a specialized inventory management solution.
Once a business has decided on a model, it is time to look for a competitive edge. That necessitates some creative thinking, prior planning, and harnessing technological and process advancements.
Top 14 Inventory Management Trends
Staying updated on the latest trends in inventory management is vital no matter what business you’re in. Many of these trends are aimed at assisting businesses in determining where to invest resources, while others will help you gain greater buy-in from stakeholders, make better use of data, and develop a growth strategy.
- Automated Guided Vehicles (AGVs) and Automated Mobile Robots (AMRs)
Consumers are increasingly demanding speedier deliveries; therefore, firms are seeking ways to work more effectively. Automatic guided vehicles (AGVs) and automated mobile robots (AMRs) are equipment that assists warehouse workers in retrieving merchandise from decks and pallets. While AGVs have been around for a long time, AMRs are relatively new.
AGVs rely on magnetic strips or cables to follow predefined courses within a warehouse, making them unsuitable for facilities with changing floorplans or a high volume of people moving about. AMRs are part of a new class of “collaborative robots,” and they don’t need fixed paths to navigate space because they incorporate sophisticated sensors similar to those used in self-driving cars. They can also be “paired” with human employees.
Both types of vehicles cut the time it takes to transport things to the warehouse and free up human workers for other activities, allowing orders to be filled more quickly. Because AMRs do not require extra infrastructure investments, such as wires to guide AGVs, they can be more cost-effective and easier to implement than you might assume.
- Artificial intelligence
Systems with artificial intelligence (AI) and machine learning (ML) capabilities complement IIoT activities in warehouses and inventory management. The issue is that most of the data that manufacturers and retailers now collect aren’t formatted to fit neatly in a spreadsheet: think product photos, videos filmed as AMRs travel around warehouses, numerous SKU formats, and data collected by various sensors and scanners. Machine learning could be used to detect damaged products or packaging, ensuring that buyers only receive high-quality things. Yet, due to the nature of inventory, your data set is constantly increasing and changing. All of this complicates the analysis.
- Cloud-based solutions
The ability to track inventory in real-time may transform any firm. Because cloud-based solutions allow all your company’s data to be securely and centrally stored and accessed from anywhere, decision-makers can respond to and solve inventory concerns more rapidly. Furthermore, the cloud, like software as a service, provides additional advantages over on-premises applications, such as lower upfront costs due to the lack of hardware to purchase, faster implementation, consistently up-to-date software, and better security and resilience than most organizations can build on their own.
From an inventory management standpoint, centralizing data streamlines the addition of new warehouse sites, including pop-up fulfillment facilities in stores. Centralization allows for a GPS location project, in which you track moving pallets, containers, or delivery vehicles in real-time to forecast when products will arrive at their destinations. This data can then be mined to determine the causes of recurring delays.
Any cloud-based inventory management software you choose, whether SaaS/cloud or on-premises, should interact with your finance and accounting systems and enable for granular inventory tracking down to the SKU or barcode, whether things are in a warehouse or in transit.
- Distributed inventory management
Distributing inventory across various warehouses can lower transportation costs and shorten delivery times if the proper products are placed in the right places and items are consistently dispatched from the warehouse nearest to the client.
Data analysis to see where orders are coming from vs where stock is situated is required for success, as is the flexibility to set up distribution centers in the relevant locations depending on data, and the technology to guide suppliers to properly break up shipments.
In most circumstances, a corporation can more tightly control inventory when it manages multiple smaller warehouses rather than a few large ones.
- Predictive picking
Again, this trend is dependent on data analysis — in this case, finding interdependencies and patterns in unstructured data to anticipate behavior. Predictive selection software can direct organizations to begin fulfillment even before an order is placed. Success is dependent on accumulating data, such as planned marketing efforts, weather, and seasonality, to accurately estimate client orders.
If that seems difficult, it is. Scalable success necessitates a large amount of data and effective analytics tools. Yet, most manufacturers and merchants can begin down the predictive path by examining past data to anticipate demand surges for specific products, such as sweets in late October or pool chemicals in May. They can then utilize human intelligence to determine why there was a spike and whether it is likely to occur again. If this is the case, the corporation will be able to keep enough stock on hand and establish a fulfillment procedure that reduces delivery times and touchpoints. And that information can eventually be fed into predictive picking software.
- Success Strategies for trend adoption
Which trends are appropriate for your company? This is determined by your company’s strategic goals, money, size, and desire for technology. These are some things to think about when examining a trend. Evaluate the cost/benefit against other long-, medium-, and short-term projects on the table, and make sure the plan has an executive sponsor who can define success.
- Personalization
Personalization in inventory management is developing a thorough understanding of your client’s purchasing habits so that you may stock and recommend relevant products while ensuring a smooth experience based on past behavior. A strong inventory management system enables businesses to use personalization data to increase sales. A store, for example, may recommend other products to customers browsing online or at the checkout, whereas a manufacturer may begin to carry complementary things, such as maintenance kits for the machinery it manufactures.
- Creative Financing
Using inventive finance to pay for goods, particularly for new manufacturers, might provide a competitive advantage.
Consider sites like Kickstarter, which allow “pre-tail” sales, where a maker can earn retail income before the product is manufactured. These sales can be used to buy raw materials and expand manufacturing capacity.
Bigger firms may consider alternatives to the usual inventory loan, in which the inventory itself serves as collateral. Check to see if you can minimize your invoice-carrying costs before looking for fresh credit.
Businesses with unsold inventory may also take actions to increase liquidity, such as turning stale inventory into cash through tempting discounts or grouping less popular items with strong sellers. Alternatively, instead of the typical own or lease model, consider more flexible renting choices – there are considerable benefits to introducing a subscription model or recurring revenue source to your organization.
- Automation
Automation is the process through which businesses build up workflow rules to trigger specified tasks without or with very little human participation. By automating routine processes, your free up personnel to work on more important projects, such as those that drive growth and product quality improvement.
Warehouse automation is a subset of inventory management that focuses on moving inventory into, around, and out of warehouses with minimal human intervention. It focuses on both digital and physical processes. Warehouse automation, at its most basic, combines machine learning, robots, and data analytics.
Switching to real-time analytics is a common technique for retailers to enable personalization, monitor changes in supply costs to recalculate stock levels, and determine which suppliers fall short of the company’s criteria.
- 3PL
Third-party logistics, or 3PL, is the practice of outsourcing distribution, warehousing, or other activities to a third party. These services may assist organizations in reaching more customers or operating more efficiently while avoiding the costs associated with infrastructure expansion. Companies might outsource a complete logistics process or select functions. The key to 3PL’s success is to connect all manufacturing sites, including the manufacturer and 3PL provider so that they work as a unified supply chain.
With more e-commerce, refunds, often known as the reverse supply chain, represent a significant drain on profitability. Contracting with a 3PL for returns handling could lower expenses because these companies typically provide economies of scale, such as better carrier rates and systems optimized to execute returns as cheaply and efficiently as feasible.
- Hybrid warehousing & shipping
A hybrid warehouse includes many activities, some conventional (storage, picking, and shipping) and some not so common, such as when the border between a retail shop and a warehouse blurs. Several big box retailers, for example, have transformed spare space into drop-ship locations. While this makes good use of space, retail staff may need to be retrained.
We’ve also seen merchants collaborate with 3PLs to store goods and ship orders directly to customers, introducing a hybrid layer to traditional warehousing and shipping. Drop shipping, in which a shop never owns stock but pays a manufacturer to ship things directly to customers, can also have a hybrid taste when a store chooses to stock a small number of popular drop-shipped items to offer premium shipping choices. Businesses can offer those extra SKUs while lowering their costs if they take an innovative approach to warehouse management.
- Omni-channel inventory control
It appears straightforward: align your channels so that a client can browse online to see if a specific item is available in a local physical location, make the purchase, and then walk into the store to pick up the item. Oh, and make sure the price of the item on the shelf matches the price paid by the consumer.
Omni-channel inventory control necessitates collaboration between store, distribution center, and e-commerce operations in order to reconcile physical and online inventory and maintain price, discount, or sale parity.
Yet, an omnichannel strategy is required to remain competitive. Businesses must ensure that they have a connected supply chain, a near-real-time inventory reconciliation process to provide visibility, advanced demand planning, highly accurate order fulfillment, data analytics and tracking, and distribution centers close to where their customers are to succeed.
- Blockchain
Most people associate blockchain with digital currency such as Bitcoin. But that’s just the start. A blockchain is just a database where transactional data is stored. Transactions cannot be changed once they are created, and a distributed ledger provides transparency to anyone or members of a private consortium.
Businesses that want to use blockchain to give certainty and visibility into their supply chains will almost certainly need to join a consortium that works in their industry. Deloitte suggests choosing a consortium that is transparent about governance, treats players fairly, and has widespread adoption in your market.
- Reporting & analytics
Many of these trends share the use of real-time data analytics to make decisions, develop a more customer-centric company model, and reduce costs while increasing efficiency.
In terms of inventory, becoming more data-driven enables firms to develop better demand projections, transition to just-in-time inventory replenishment, and receive and deliver near-real-time updates on where supplies or shipments are and when they will arrive at their destinations.
Nevertheless, simply having access to enormous amounts of data is insufficient. Companies must perceive it as a resource and utilize it to remain competitive. The following are some best practices for becoming more data-driven:
- Collect data even
- Opt for interconnected software and data sources.
- Insist that decisions are based on data.
- Take action based on insights.
Improve Your Inventory Management With NetSuite
Inventory managers must expand their skill sets and learn new data analytics and forecasting capabilities to maintain and even grow their operations. Integrated business solutions with inventory management, such as NetSuite ERP, may help you collect and analyze data so that you can embrace current trends, keep your profit margins robust, and provide a high level of service to your clients.
Inventory management can make or break a firm, and as technology evolves, companies have more opportunities to gain insights. To remain competitive, it is critical to pay attention to these developments.
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