Why Having Effective Inventory Management is Only Part of the Story
Small and medium sized enterprises (SMEs) are still struggling with the ongoing manpower shortage and an increase in employee salaries and rents, while also suffering from declining profits. In a bid to counter growing costs, while still remaining innovative and wanting to invest in the latest technologies, SMEs often seek to just deploy one vital module – inventory management – because they see this as key to their business growth.
There are several reasons why this is not a viable option. The inventory management module is tightly coupled with other processes in an enterprise. These include purchasing, manufacturing, sales and customer service. With modern Enterprise Resource Planning (ERP) systems, the inventory management module will be inextricably connected to the other modules including finance and logistics.
Inventory management is only as effective as your last order fulfillment, but it’s a never-ending requirement to have optimum stock across all locations with the capability to deliver on your promises to retain your competitive edge.
Best in class supply chain organisations are able to improve inventory optimisation by 20%-50% by employing sophisticated analytics tools, resulting in savings for years.
Optimum inventory levels impact all areas of the business, including:#
Sales
Previously, companies thought that achieving optimum inventory levels was only brought about by effective sales forecasting. This is often a misguided conception, although there is some truth that sales and inventory need to maintain a strong link, but it’s more than just sales pipeline.
Being able to track inventory based on geographical requirements, with real time analytics can transform your inventory levels beyond what you thought possible. Shifting stock between warehouses, reducing or streamlining delivery plants and optimising inventory around seasonal, ad-hoc or crisis events is becoming the normal expectation of companies today.
Customer service
When your contact centre talks to customers more often, and through increasingly engaging channels, your inventory needs to be able to respond accurately and quickly. Your customers are also expecting much quicker delivery rates, especially in retail, as these examples show. Increasing customer interaction leads to more sales, returns etc. so your inventory needs to be able to back up your promises.
Manufacturing
Inventory levels can be thrown into a tailspin when an unplanned situation crops up in your manufacturing plant. A vendor lets you down with raw materials, a natural disaster occurs close to your factory affecting operations, staff go on strike. Having your inventory in check will not prevent such incidences occurring, but an effective enterprise resource planning solution will equip you with best practice back up plans and complete oversight on contingency plans to keep your business running.
Marketing
Marketing and inventory cross over when a successful marketing campaign is executed and demand for products increases. A spike in marketing activity might occur at set times throughout the year, enabling sufficient inventory to be prepared, but it might also occur as an ad-hoc response to current consumer trends. Either way, the inventory needs to be there to support the business.
Procurement
Having a solid procurement structure in place enables organisations to better negotiate and obtain competitive prices that they can pass on to their consumers. Planning inventory means planning purchasing cycles effectively to ensure each warehouse has the right stock, when needed and can obtain more or less, as needed.
Finance
Each business is aware of the intrinsic link between cash flow and every other business function! Buying unplanned inventory, or wasting stock has a direct flow-on effect to cash flow so the more aligned the systems and processes can be between these two functions, the better.
We appreciate that poor inventory management might be the driving force behind your company’s decision to look into ERP; this is quite common. But limiting your vision simply to securing an optimum inventory system at the detriment to the rest of your business will not help you grow in the long-term.
If your company is wondering how to get around this problem, whilst keeping investment costs down, get in touch with a competent business systems consultant to discuss your options.
This article is based on a blog post previously published by me at Blue Ocean Systems
Please review my other Small and Medium Enterprise (SME) related Steemit posts:
Customer Service Recovery – Sorry Seems to be the Hardest Word
7 Surprising and Worrying Statistics About Customer Loyalty
My business is small – why worry about keeping things simple?