What is an Inventory Management Process? A Comprehensive Guide
A great inventory management process saves money and time. When done right, it also improves cash flow and the customer experience. As more sales channels and fulfilment options become available, its importance is growing too.
Whether you want to take advantage of social commerce, make your products available on more marketplaces or implement quick commerce fulfilment, a first-rate inventory management process is essential. Post-pandemic, it will also be key to reviving retail and managing the supply chain crisis.
With all of this in mind, we’ll take a look at everything from inventory control and stock monitoring to the different types of inventory management software available.
What is an inventory management process?
An inventory management process is about tracking and controlling your brand’s stock from the moment it’s manufactured until it reaches customers. This includes procuring, storing, moving, processing and selling inventory.
Inventory management aims to ensure that the right level of stock is always available in the right place at the right time. To avoid shortages or oversupply, brands need to carefully enact stock monitoring and make forecasts based on the likes of seasonal demands, past trends and marketing promotions.
Inventory management can have a huge impact on a brand’s financial wellbeing. According to Retail Dive, stockouts cost retailers $1 trillion every year. Back in 2014, Walmart alone lost out on $3 billion in sales because of stockouts. However recent research suggests that surplus stock costs businesses even more than stockouts, so it’s crucial to get the balance right.
Inventory management vs. inventory control
The terms inventory control and inventory management are often used interchangeably. But they actually refer to two different things.
Inventory control is concerned with managing stock that is in storage. Whereas, inventory management is a broader term that encompasses the entire process of managing stock – from ordering to shipping.
Inventory control is about storing stock effectively and minimising warehouse costs. It aims to achieve balanced stock levels that prevent deadstock while also avoiding stockouts. When done correctly, this saves money and improves cash flow without negatively impacting customers.
However, before you perfect your company’s inventory control process, it’s important to put a solid system of inventory management in place. In order to get your warehouse running smoothly, you first need to liaise with suppliers and streamline fulfilment.
The 5 step inventory management process
Before being able to optimise your inventory management process, it’s important to ensure you have the basic steps covered. Below we’ve broken down five essential steps required for any inventory management process:
1. Receive and inspect products
The first step in the inventory management process includes receiving your order from the supplier. Getting this part right is crucial for the following steps to function as efficiently as possible. The first thing that should be done after the order arrives it to inspect the products. It’s important to check that the quantity, product code and serial code are all correct. You should also ensure handling conditions, such as temperature, are accurate for perishables, and that all products are in good condition.
2. Sort and stock products
After inspecting the products, they must be properly stored in the warehouse and inputted into your leave management system. At this stage, it is a good idea to be strategic about how products are stored. Warehouse slotting techniques, such as organising products based on SKU and product type can be beneficial. It is also important to minimise the distance to bestselling products by storing them where they are most accessible.
3. Accept customer order
The next step in the inventory management process involves accepting customer orders. The orders will typically go through a point of sale system (POS), which processes the orders and accepts payments. The POS system will either have a built-in inventory management feature, or be integrated with an inventory management software that will enable the order details to be viewed by the warehouse staff.
4. Fulfil, package and ship order
Once a customer has placed an order, the next step is to accurately and expediently fulfil, package and ship the order. If the second step in the process was optimised, searching for and selecting the products in the warehouse should be relatively straightforward. Some important aspects to consider when packaging the product are the customer experience, durability and sustainability. When shipping the product, be sure to send the customer a confirmation email with tracking information.
5. Reorder new stock
When reordering new stock, it is crucial to ensure the timing of new orders and amount of goods are correct. By leveraging the reorder point formula, you can minimise the risk of both stockouts and deadstock – two problems that negatively impact your bottom line. Certain inventory management systems automate the process of reordering, which saves time and prevents any mistakes from human error.
Tip to optimise your inventory management
Now that we’ve discussed the five steps in every inventory management process, we’ll look at some ways to optimise your inventory management. Whether you’re interested in saving money, making space or wowing customers, there are countless methods you can apply to manage your stock better. Here are just a few of them:
1. Keep on planning
Getting inventory management and control just right is a never-ending task. You need to consistently track results, monitor stock levels and investigate any issues that arise. Based on this data, you can then update your management plans.
Continuously tweaking the likes of safety stock levels and replenishment cycle lengths is crucial. It’s also important to keep an eye on world events, supply chain news and changing consumer behaviour so that you can adjust your plans as necessary.
2. Put priority products first
Managing all your inventory at once is a daunting task. So start by identifying critical stock and optimising the process around them.
This probably means zoning in on bestsellers, as well as products featured in upcoming marketing campaigns. Figures from 2020 suggest that stockout rates for top-selling products usually lie between 8% and 12%, so this is definitely an area worth concentrating on.
Many brands use the ABC Analysis model to pinpoint their most valuable stock. Then, they figure out which replenishment patterns ensure they’ll never go out of stock without tying up too many resources.
3. Engage all stakeholders
To get your inventory management right, it’s essential that you build a team with varied areas of expertise.
First off, you need a core team of mathematical modelling specialists. But you should create a culture that ensures they meaningfully interact with non-math executives. You also need to involve staff from across all stages of the inventory management process – from pickers on the floor through to warehouse managers. It’s a good idea to get input from customer support staff too.
You should also try to build close relationships with your manufacturing team and external suppliers. This should provide more reliable supplies and new opportunities to reduce costs.
4. Match your approach with your business model
There is no one-size-fits-all solution when it comes to stock monitoring and inventory management. Every brand has unique needs depending on its size, delivery methods and location.
When choosing a management system, companies need to consider:
Transportation networks: Do they require local or international deliveries? What about the likes of in-store pickup and quick commerce options?
Warehouse locations: Based on volume history and geographical needs, what needs to be available where?
Manufacturing locations: Where are supplies based in relation to warehouses?
5. Choose the right tools
It’s important to choose software and tools that can scale and change alongside your business.
Cloud-based inventory management software usually offers this. They aren’t affected by power cuts or local tech issues either. Just make sure to choose one that integrates with the rest of your eCommerce stack and tracks the data you need to make solid decisions around inventory planning.
It’s also wise to embrace technology like mobile printers, scanners and computers. This will save time in the warehouse and on the road, allowing staff to track goods faster and with fewer errors. RFID tags also allow for hands-free, instantaneous stock counts.
However, it’s worth noting that your tools will only be as good as the management process you have put in place.
Top inventory management software
As outlined above, warehouse technology can empower staff and please customers. So let’s take a closer look at the software solutions that allow businesses to have complete oversight of their stock with just a couple of clicks.
Inventory management software
Simply put, they connect your entire supply chain. This way you know exactly how much stock you have on order, in the warehouse and going out at any given time.
It’s important to make sure the platform you choose integrates with other core tools, such as your accounting software, eCommerce store platform and CRM system.
Inventory control software
You can also find software that focuses solely on inventory control within your warehouse and storage facilities.
The likes of Odoo, Körber and Fishbowl help you implement efficient stock processes. The idea is to maximise warehouse space and reduce costs by minimising stock levels. But, at the same time, you’ll have enough inventory on hand to avoid the risk of running out.
These warehouse-centric solutions make it easy to implement smart barcodes and RFID tags for convenient stock management too.
Omnichannel stock monitoring software
If you stock products across third-party marketplaces and retailer networks, there are tools specifically designed to help you manage stock across multiple platforms.
ChannelSight’s Digital Shelf software provides stock monitoring and inventory insights at a more in-depth level. Its detailed coverage reports include real-time data on stock fluctuations and pricing for every channel you sell on. This allows brands to increase sales by ensuring products are constantly available and always priced optimally.
It is also possible to track a product’s search rankings and customer ratings on each channel. This allows brands to understand the visibility of their products online, ensuring they win the digital shelf.
A streamlined inventory management process is not only a competitive advantage in today’s world of eCommerce, but a must for business performance. Now that we’ve gone over the steps and tools needed to get started, you’re well on your way to better managing your stock and fulfilment – which will lead to positive results for your business’s bottom line.