The products stored in your warehouses and fulfillment centers are essential to keeping businesses thriving, but this only makes smart financial sense if you have what you need—not much more. Otherwise, products will go to waste, and you will spend too much on warehousing space.
Inventory management is all about finding the right balance. It can be the key to juggling supply and demand and getting what you need from your working capital. Let’s explore some challenges inventory managers face today and tips for managing stocked items to meet consumer demand while limiting excess stock and preventing stockouts through technology-based tools.
Ongoing Challenges with Inventory Management
As warehouses and fulfillment centers continue to confront widespread supply chain obstacles, many of these create various challenges with inventory management. Some of these include:
- Inventory Tracking and Accuracy: One of many persistent inventory control issues is smooth tracking combined with inventory accuracy. Tracking inventory in real-time is challenging, particularly for businesses with extensive inventories. Inconsistencies between physical stock and inventory records can also cause problems.
- Managing Inventory Levels and Costs: Inventory management issues involve balancing inventory quantities against costs. Understocking or overstocking can result in either lost sales opportunities or higher costs.
- Keeping Up with Market Trends: Inventory management solutions must align with market trends and consumer needs. For example, fast-changing consumer preferences can impact demand levels for current inventory.
- Integrating Multi-Channel Solutions: Integrating inventory has become challenging as consumer preferences change and businesses expand across multiple channels. Cross-channel inventory management (i.e., keeping track of inventory in stores, warehouses, etc.) can be complex.
- Implementing Sustainable Practices: More and more consumers want to support businesses with sustainable practices. The challenge for warehouses and distribution centers is reducing waste in the inventory process and finding other ways to minimize environmental damage.
Mastering Effective Inventory Management in 2024
Efficient inventory management is vital for any business that sells products. It offers a variety of benefits that can impact the bottom line, including reduced costs, minimized stockouts, better cash flow management, higher customer satisfaction and improved decision-making processes. Here are some ways businesses can master effective inventory management in 2024 and beyond:
- Review and Update Inventory Policies: Most warehouses and businesses have inventory policies, which might specify how much stock to hold, how items should be stored and methods for re-ordering. These policies should be reviewed and updated frequently to stay in step with the ever-changing market so the business can address challenges and take advantage of new opportunities.
- Embrace Technology: One of the biggest trends in inventory management in 2024 is the continued implementation of digital transformation in the warehouse. Examples include:
- Warehouse Management Systems (WMS): Serve as the foundation for running a more data-driven and automated warehouse. A WMS can track inventory, predict demand fluctuations, enhance supply chain visibility and personalize the customer experience.
- RFID Tags: While many warehouses still use barcode technology, RFID tags are expanding due to the benefits of the solution. RFID tags can reduce errors, lower costs and improve efficiency in inventory management.
- Robots and Automated Guided Vehicles (AGVs): These solutions are increasingly used in warehouse operations, particularly for repetitive tasks like storing and retrieving inventory.
- More Data Sharing: One lesson learned from global supply chain challenges over recent years is that siloed data creates more confusion and bottlenecks. To improve inventory management efficiency, many companies are now sharing data, eliminating these siloes internally, as well as sharing data with business partners more openly. You can make more informed inventory management decisions when you can see what’s happening with a manufacturing or shipping partner.
- Use Distributed Inventory Management: With the pandemic, many businesses have discarded the idea of just-in-time inventory management, even though it can be the most cost-effective and efficient when it works as designed. Instead of stockpiling massive amounts of inventory, some businesses embrace a different strategy—distributed inventory management. By storing inventory at smaller, distributed local warehouses and some brick-and-mortar stores, sellers can fulfill orders at locations closer to their customers. This can reduce inventory management costs and improve customer experience via faster shipping times.
- Encourage Sustainability Initiatives: With growing environmental concerns and changing consumer preferences, warehouses are beginning to prioritize sustainable practices. In the coming years, expect to see an increase in more energy-efficient solutions, like eco-friendly packaging, solar panels, LED lighting and waste reduction strategies. Many warehouses and logistics providers will also use more EVs to help reduce carbon emissions.
- Measure Key Performance Indicators (KPIs): Supply chain troubles may not be as severe as they were a few years ago, but there are still challenges related to efficient inventory management. The best way for businesses to manage these issues is to establish and use inventory KPIs to properly plan and organize inventory. A few examples include:
- Holding costs: how much it costs to store unsold inventory
- Lead time: how long it takes to receive inventory from your supplier
- Stockouts: products you have that are currently “out of stock”
- Deadstock: inventory on hand that isn’t selling
- Inventory accuracy: how your actual inventory levels match up with your inventory records
- Inventory days on hand: the average time it takes to use up inventory on hand
- Implement Staff Training: While automation has become increasingly important for warehouses, we’re many years away from robots replacing workers. Automation allows businesses to level up their workforce by increasing their knowledge about various business challenges so they can be empowered to use technology to impact overall results significantly.
Effective inventory management is essential to balancing supply and demand and unlocking working capital. It also helps a business deliver a positive customer experience, crucial for business results and success. As we head into the second half of this year, companies will seek more sophisticated inventory management solutions to improve efficiency, transparency and profitability.
