Inventory management is a crucial part of business management. 2024 is shaping up to be one of the worst economic years of the decade so far. Interest rates are soaring through the roof and businesses are panicking, trying to find ways to control costs. Survival is the order of the day. Rather than growth, maintaining consistency and keeping positive cash flow are the number one goals.
Good inventory management is key to achieving both. A well-crafter and managed inventory management system can save a business thousands of dollars. It also helps boost efficiency in a variety of ways, and modern inventory management technology can elevate a business far beyond it’s regular performance.
Today, we will be discussing the top ten benefits inventory management brings to small businesses. As they are the most vulnerable in these trying times, small businesses need to fix up their inventory management. The survival of their business depends on every dollar they can save, and inventory management can go a long way in saving every last penny.
Table of Contents
What is Inventory Management?
Inventory management includes all the processes a business implements to procure, store, utilize and sell products. Inventory management is not just about placing an order for products and making sure they arrive safely. Inventory management involves complex processes like demand and supply planning, which allow a business to procure just the right amount of inventory needed.
It also involves deep social relationship management, as businesses need to negotiate favorable deals with vendors and work out mutually-beneficial arrangements. Everything from figuring out how much inventory is needed to finding a way to get the inventory to customers comes under inventory management. Inventory is at the heart of revenue generation; you cannot earn money without offering inventory in exchange to customers.
Top 10 Reasons Why Small Businesses Should Invest in Inventory Management
Cost Savings
As mentioned previously, small businesses need to save money to hedge against inflation. Every penny saved today can end up saving the business tomorrow. Good inventory management can result in great savings. Just think about how much money the average retail store loses every month due to poor inventory management. To put a number on it, how does a global loss of $1.75 trillion sound?
That’s what a landmark 2015 report on the cost of poor inventory management reported. Now consider these losses in the context of 2024. The economy is far more volatile. Consumer anxiety is at an all time high, and people are just not spending as much as they used to on non-essential products. Poor inventory management means the business will end up in more frequent stock outs and overstocking situations. The same situations which are the primary causes of lost revenue in the report.
By implementing robust inventory planning, businesses can avoid these pitfalls. Expert inventory management services utilize data-driven demand and supply planning to ensure the business always orders as much as is needed.
Order too much inventory and you’re stuck with goods that may never sell. Order too little inventory and you’re leaving money on the table as customers seek out competitor businesses. A delicate balance must be struck to maximize earnings with inventory while minimizing associated costs. Only solid inventory management can achieve these goals and keep your business afloat in 2024.
Higher Sales
Robust inventory management results in your business always being able to meet consumer expectations. With an expert inventory manager helming the function, you can expect to have product available for every consumer. An especially efficient inventory manager even takes into account possible upticks in sales and keeps extra inventory on stand-by with vendors in case an emergency stock-up is required.
Overall, a strong inventory management system means you always have enough product to fulfil every order without running into the trap of overstocking.
Shorter Lead Times
Good inventory management is the key to an effective order to cash process. Rather than storing inventory chaotically in a warehouse, sophisticated inventory management leverages tools and techniques to make sure everything is easy to find and deliver. Using technology like RFID and barcodes, businesses can neatly organize products for easy access. When an order is received, it can instantly be checked out and shipped without any delays as warehouse workers muddle about for the right product.
Mitigating Order Fulfilment Mistakes
Another consequence of poor inventory management is that things are not labelled and stored correctly. This means that when orders are being packed and shipped, wrong products can end up in customer hands. This can be disastrous for an e-commerce business, as one bad consumer review can bring the business to a grinding halt. Good inventory management minimizes such mistakes, and has provisions in place to verify correct product shipping before inviting customer ire.
Enhanced Organization-wide Data Transparency
A central ERP system can be integrated with inventory management software so the enterprise knows the status of inventory.
This can help the sales department better plan for sales strategies. The marketing team can develop marketing campaigns around available inventory. The accounting function can better maintain the books knowing the status of the inventory and associated costs. Almost every business function benefits from knowing the status of inventory.
Enhanced Planning
Inventory management savants can completely change the game for a business. By utilizing historic data and current market trends, they can help the business plan for future stocking. This includes planning for procurement costs, storage costs, shipping, and handling. Without inventory management, everything ends up haphazardly managed. Product is orders when it is needed, leading to frequent stock outs.
Poor planning is simply a recipe for disaster, and entirely avoidable. You do not even need an expert on your side. Just taking the time to look at how products perform and what people are interested in can greatly improve your odds of stocking the right product that will sell and bring in revenue.
Improved Vendor Relations
Cutting good deals is an art that every competent inventory manager is proficient in. The first step in the supply chain is planning how much product is needed and figuring out how to procure said product. Good inventory management involves rigorous negotiations, where businesses try to come to a mutually beneficial arrangement. Whether it be securing discounts in exchange for guaranteed future business, or any other deal.
If you just buy inventory at whatever price is presented without ever trying to build relationships with suppliers, you’re doing it wrong. You need to be deeply familiar with your supplier. Inventory management professionals are masters in befriending vendors, and can get you out of some sticky situations like delayed payments.
Improved Productivity
A healthy inventory management system greatly reduces the need for constant attention. AI in inventory management has come so far that businesses can automate most of the tedious inventory management processes. When an order arrives, software can automatically check if inventory is available, approve or decline the order, and push it forwards toward fulfilment. This leaves entrepreneurs and everyone in the supply chain more time to focus on growth activities.
Better Insights
Good inventory management significantly boosts insights by providing accurate, real-time data and analytics capabilities, which can lead to better decision-making, enhanced operational efficiency, and improved customer satisfaction. This includes tracking various inventory-related KPIs to measure performance and optimize processes. Businesses can use data to track product performance, and plan supply accordingly.
More Flexible Scalability
Efficient inventory management systems can scale with the business, supporting growth and expansion without compromising efficiency. Small businesses can adapt more quickly to changes in demand or market conditions with agile inventory practices.
Conclusion
With luck, this short dive into the benefits of inventory management for small businesses proves an eye-opening experience. Recession is upon us, and small businesses need to wise up and invest in inventory management services and systems. AI in inventory management is a key component of modern inventory management. By onboarding competent inventory management experts and leveraging the latest technologies, small businesses can surmount even the greatest recessionary waves.
