Mastering Multi-Warehouse Management: The Power of Real-Time Inventory Information

Inventory Management Is A Term That Describes The Management Of Inventory

Inventory management involves having the correct items available at the appropriate time to satisfy customer demands while managing costs and minimizing loss and waste. Best-in-class inventory management companies don't have to guess how much to purchase. They keep raw materials and work-in-progress items moving smoothly from production to the consumer.

Inventory management involves the acquisition, storage, and sale of four types of stock: finished goods, works-in-progress (WIP), and maintenance, repairs, and operations (MRO).

Four Main Types Of Inventory Explained

Raw Materials: Includes non-perishable items, for example, wood, sand or wool, or fruits, vegetables, or grains that are used in the production of processed food.

Work In Progress: A WIP is a work in progress, which includes items, for example, fabric, glass sheets, window frames, and flour.

Final Goods: The finished goods include items that are ready to sell, like a suit, a loaf of bread, or a window. The finished goods can be intermediate products destined for another manufacturer (such as bread for a sandwich shop or fabric for clothing makers) or consumer items destined for retailers or direct to consumers.

Maintenance and Repair: Items needed for MRO are tools, spare parts, or consumables that get the product to its destination, such as paint and packaging. Companies, especially in industries that require a lot of inventory, like manufacturing, retail, and food services, must be careful to avoid overstocking and minimize waste. Inventory models are a great way for companies to achieve this.

The Benefits of Inventory Management

Inventory is among the company's most important assets. The inputs and products of a business are its core in retail, manufacturing, and food service, as well as other sectors with a high inventory. Inventory shortages can harm a company's business.

Inventory can also be viewed as an asset (even if it is not in a financial sense). Large inventories carry the risk of theft, spoilage, damage, or shifts in market demand. If an inventory isn't sold by the deadline, it must be destroyed or sold at clearance prices.

Inventory management is essential for any business, regardless of its size. Inventory management can be a complex process. Knowing how to manage inventory and what to buy or make, as well as what to charge, when to sell, and what to price, is a difficult decision. Excel formulas are used by small businesses to determine reorder levels and quantity. Larger businesses use enterprise resource planning software. Large corporations use software-as-a-service (SaaS), which is highly customizable.

The best inventory management strategy depends on your industry. Oil depots can store large quantities of stock for long periods, which allows them to await a demand increase. Although storing oil can be expensive, and a 2005 fire cost millions in damages and fines in the U.K., it is unlikely to go out of fashion or spoil.

It is particularly difficult for companies with complex supply chains or manufacturing processes to balance the risk of stock glutes and shortages. They have developed several inventory management methods to achieve this balance, such as just-in-time (JIT) and materials requirements planning (MRP).

Some firms, such as those in the financial sector, do not maintain physical inventories and rely instead on Service Process Management.

Accounting For Inventory

Stock is a current asset because a business usually intends to move its goods relatively quickly. Before inventory can be added to a balance, it must be counted and measured. Most companies have sophisticated inventory management systems that can track real-time stock levels.

The inventory cost is calculated using either the first-in, first-out method (FIFO) or by weighted average. Inventory accounts are typically divided into four categories:

1. Raw Materials: These are the various raw materials business purchases to use in its production. Before a business can turn these materials into finished goods, they must be transformed.
2. Goods-in-Process: Raw materials that are in the process of being transformed into finished products.
3. Completed Goods: These are products that can be sold to customers.
4. Products: Are finished products that a business buys for resale from its supplier.

Stock Management Techniques

Depending on the product or business being examined, a corporation may employ various inventory management approaches. Just-in-Time (JIT), Materials Requirement Planning (MRP), Economic Order Quantity (EOQ), Days Sales of Inventory (DSI), and other management techniques are examples. These are the top four techniques used for inventory analysis.

• Just-in-Time Management (JIT)

The Japanese developed this manufacturing method in the 1960s and 70s. 2 This method reduces waste. It saves businesses money by only keeping the inventory needed to make and sell their products. The method reduces storage costs, insurance, and liquidation of excess inventory.

JIT Inventory Management can be dangerous. The manufacturer might need more stock to satisfy unexpected demand. This could damage its reputation and drive customers to competitors. The smallest delay can cause problems. If a critical input is not delivered "just at the right time," it can lead to a bottleneck.

• Materials Requirement Planning (MRP)

A ski manufacturer who uses an MRP system may ensure that plastics, aluminum, and fibreglass are available based on the forecasted order. A manufacturer can only meet orders if they can accurately forecast sales or plan inventory purchases.

• Economic Order Quantity

The model can be used to manage inventory by calculating how many units an organization should order for each batch to lower the inventory cost while maintaining a constant demand from consumers. The model includes holding costs and setup fees in inventory costs.

It is based on the assumption that there are tradeoffs between inventory holding costs and inventory setup costs, with total inventory cost minimized when both setup and holding costs are minimized. The model assumes a tradeoff between holding inventory costs and setup costs. Total inventory costs will be minimized when setup costs, as well as holding costs, are reduced.

• Days Sales Inventory (DSI)

This ratio shows the time a business takes to convert its stock, which includes goods in production, into sales. DSI can be interpreted in many ways. It is known by several names, including the days of outstanding inventory (DIO), Days in Inventory (DII), or even days of sales.

The figure indicates the liquidity of an inventory. It is the number of days that a business's current inventory will last. A lower DSI indicates a quicker time to sell off inventory. However, the average DSI varies by industry.

• Inventory Management Red Flags

A management team may need a reasonable explanation to create a false impression of the company's business by frequently changing its inventory accounting method. SEC mandates that public companies disclose LIFO reserves, which can allow inventories to be cost under LIFO to match FIFO costs.

Frequent inventory write-offs can indicate inventory obsolescence or problems with sales. It can raise concerns about a firm's future ability to remain competitive and produce products that appeal to customers.

How Do You Manage Inventory?

Just-in-time (JIT), Materials Requirements Planning (MRP), Economic Order Quantity (EOQ), and Days Sales of Inventory (DSI) are the four subcategories of inventory management. Different inventory management techniques are more effective for various types of firms. Each fashion has benefits and drawbacks.

How Important Are Inventory Models for Managing Stock?

A business's inventory model determines the best way to manufacture its products. Inventory models determine how often to order MRO or raw materials to ensure that there is only a little on hand. They also decide how to store and track items. At the same time, they wait for production or in transit and how quickly and accurately to fulfill customer orders. When selecting an inventory model, consider the type of industry you are in. Also, consider any specifics about the product lifecycle and the model that will maximize your investment.

Understanding inventory models is the first step to effective inventory management. It will allow businesses to maximize their resources, control costs, and provide quality products on time. Each model uses a different technique that helps leaders decide how much inventory to keep.

Companies with complicated supply chains and production procedures, for instance, utilize just-in-time (JIT) and materials requirement planning approaches to keep inventory in stock. Economic order quantity, production quantity, and days of inventory models are all helpful.

While small businesses often track their inventory using spreadsheets to keep up with the demand, large corporations can benefit by using enterprise resource planning software (ERP) or an inventory management app. After a business has decided on its model, the next step is to find a way to gain a competitive edge. This requires some innovative thinking, advanced planning, and technology and processes.

Get a Free Estimation or Talk to Our Business Manager!

The Complete Guide to Stock Forecasting

Inventory forecasting is crucial to ensuring profitability. Otherwise, you could end up with unsold products that drain your cash flow. Inventory forecasting clearly impacts the bottom line: inventory is kept at an appropriate level, and orders are more accurate.

The Top 14 Trends in Inventory Management

No matter the type of business, it's important to stay current with current inventory management trends. These trends can help companies decide where they should invest their resources. Others will increase stakeholder buy-in, improve data use and provide a growth roadmap.

• Agvs And Automated Mobile Robots Are Two Types Of Guided Vehicles

Businesses are looking to improve their efficiency as customers demand faster deliveries. Warehouse operators can use automated guided vehicles (AGVs), and mobile robots to collect goods from pallets or decks. AMRs, while newer than AGVs, are a great way to collect products from decks and pallets.

The AGV is a new class of "collaborative robots" that uses smart sensors to navigate a space. They don't need fixed routes because they use magnetic strips and wires. AMRs belong to the new "collaborative robotics" class. They don't rely on a fixed route to move around a warehouse because they have smart sensors like self-driving cars. The robots can be "paired" up with human workers.

The vehicles can help to reduce warehouse time and allow staff to focus on other duties. This allows for faster order fulfillment. AMRs are more affordable than they might seem, and can be relatively simple to install.

• Artificial intelligence

Systems with AI and ML capabilities are a great fit for inventory and warehouse management. It's a problem that the vast majority of data collected by manufacturers and retailers is not structured in such a way as to be easily incorporated into a spreadsheet. Think of product images, video footage taken while AMRs are moving around the warehouse, different SKU formats, and data from all kinds of scanners and sensors. The use of machine learning to identify defective packaging or products could ensure that only quality goods are delivered. The nature of your inventory will mean that the data you have is constantly growing and evolving. This makes analysis difficult.

• Cloud Solutions

Any business can benefit from the ability to monitor inventory in real time. Cloud-based software allows all your data to be securely stored centrally, and can therefore be accessed anywhere. This allows decision makers to respond and resolve inventory problems more quickly. Cloud, just like software-as-a-service, offers other advantages over traditional on-premises software: lower upfront costs, since no hardware is required, quicker implementation, always-up-to-date applications, and greater security.

Situating data centrally simplifies the addition of new warehouse locations and even pop-up fulfillment centers in store. The centralization of data allows for a GPS project that tracks moving pallets, delivery vehicles, or containers in real-time to determine when the items are expected at their destination. This data can be used to identify the causes of recurring delays.

Cloud-based inventory software, either SaaS/cloud-based or on-premises should be integrated with your accounting, finance, and order management system. It must also allow you to track inventory by SKU and barcode whether the items are at a storage facility or in transit.

• Distributed Inventory Management

If you are able to place the correct products at the appropriate locations and dispatch the items consistently from the closest warehouse, then it is possible to reduce transport costs while speeding up the delivery time. Data analysis is key to success. It allows you to determine where to place distribution centers based on the data. You can also use technology to tell suppliers how to split up their shipments. When a business manages smaller locations versus just a few large ones, they can usually better control their inventory.

• Picking With Predictive Technology

This trend is also based on data analytics -- this time, by using unstructured data in order to recognize patterns and interdependencies. The use of predictive picking software allows businesses to begin fulfilling orders before the order is even placed. Compiling information such as weather, planned marketing campaigns and seasonality is key to predicting customer orders accurately.

It is. Data and analytics are key to success at scale. Most manufacturers and retailers will start the process of predictive analytics by looking at historical data. This allows them to identify demand spikes, even if they are not obvious such as candy late in October or pool chemicals during May. They can then use their human intelligence to determine why the spike occurred and if it is likely to occur again. The company will then be able to keep enough inventory on hand, and can design a process for fulfillment that reduces the shipping time and touch. This data will eventually be fed into a program that predicts picking.

• Trend Adoption Strategies That Work

What trends are right for you? It depends on the strategic goals, budget, size, and appetite for new technology of your business. Consider these factors when evaluating trends. Consider the costs and benefits of the trend in comparison to other medium and long term projects. Also, make sure there's an executive sponsor that can determine the success of the plan.

• Inventory Management Personalization

inventory is all about understanding the buying patterns of your customers. This lets you stock relevant products, suggest them, and provide a seamless shopping experience. Robust inventory management systems allow companies to use personalization information to increase sales. A retailer could suggest other products when customers browse the web or at check-out. In contrast, a manufacturer might stock items that complement its machinery, like maintenance kits.

Personalization Data Can Be Obtained From:

• Persona Data for people, like job titles or locations.
• Data about the company, including employee numbers, revenues, and industries.
• Behaviour data can be derived from a client's website or order history. This includes new vs. returning customers, type of content consumed, quantity purchased, or product diversity.
• Contextual Data, such as the time of day or week a customer is visiting your website or whether they are ordering from their mobile or desktop device.

• Creative Financing

For newer manufacturers, creative finance can give them a competitive advantage. Think about smaller sites, like Kickstarter, that allow "retail sales," where makers can earn retail revenues before their product is even produced. The sales of these products can be used to fund the purchase of raw materials or manufacturing equipment.

Manufacturers with larger inventories may look for alternatives to the typical inventory loans that use the stock as collateral. Consider reducing your invoice-carrying costs before looking at new financing. AR factoring or loans, also known as invoice factoring, involves selling or borrowing from your receivables.

Stock that is not selling can also be converted into cash through attractive discounts or bundles of less-popular items and strong sellers. Consider more flexible options for renting instead of a traditional lease or own model. There are many advantages to adding recurring income to your business.

• Automation

Automating workflows is when companies create rules that trigger certain actions with minimal or no human involvement. Automating repetitive tasks allows employees to concentrate on more important projects, such as improving product quality and promoting growth.

Retail automation, for example, can update stock counts automatically when an order goes through the sales platform. The customer won't need to wait for an order confirmation, nor will they be exposed to the risk of overselling. Other examples include automating SKU mapping and order retrieval, updating shipping rates in real-time, and reordering notifications.

The warehouse automation discipline is centered on moving stock into, out of, and around the warehouse with minimum human interaction. The focus is on both digital and physical processes. Warehouse automation combines machine learning, robots, and data analytics. A warehouse management system can gather information about the SKUs expected to ship within the next 24 hours and direct a worker on how to collect them all together to prevent repeat trips. Both digital and physical processes are highlighted.

Robotics, data analytics, and machine learning are all used in warehouse automation. To avoid making additional trips, a warehouse management system can compile data on the anticipated SKUs to ship in the next 24 hours and instruct a worker on how to gather them all together. AMRs could be assisted by AI, cameras, and sensor technology to navigate warehouses and assemble orders without human assistance.

Real-time analytics allows retailers to enable personalized shopping, track changes in the cost of supplies, update stock levels, and determine which suppliers don't meet company standards.

• 3PL

3PL is a term that describes the outsourcing of distribution, warehousing, and other activities. They can help companies reach new customers and operate more efficiently without the high costs associated with building infrastructure. Outsourcing an entire logistic process is possible, or businesses can choose to outsource certain operations. To succeed with 3PL, it is important to link all production sites, both the 3PL and manufacturer, so that they work as one cohesive supply chain.

Returns, or the reverse supply chains, are a major drain on profit. A 3PL could help reduce returns handling costs. These firms offer economies of scale and better carrier rates, as well as optimized processes to handle returns in the most cost-effective and efficient manner.

• Shipping & Warehousing Hybrid

The hybrid warehouse is a combination of multiple functions, including some common -- such as storage, pick-up, and shipping -- as well as some less so, like when the distinction between a retail store and warehousing blurs. Some big-box stores, for example, have turned unused spaces into drop-shipping locations. Retail employees might need to undergo retraining if this is done.

Retailers have partnered with 3PLs to warehouse inventory and send orders directly to customers. This adds a hybrid element to the traditional methods of warehousing and shipping. Drop-shipping, in which a retailer does not take possession of the stock but instead pays a manufacturer directly to ship items to their customers, may also be hybridized when retailers keep a few popular items on hand to offer more premium shipping. Businesses can lower costs by using a creative warehouse management approach.

• Omni-Channel Inventory Control

The solution seems straightforward: align your channels to allow customers to check online if an item they are interested in is nearby, purchase it, and then pick it up at the shop. Ensure that the product's price on the shelf matches the amount paid by the customer.

To ensure that physical and online stock is equal, it's important to coordinate store, distribution center, and ecommerce operations. This will also allow you to maintain price, discount, and sale parity. Suppose a customer purchases an item online for $50. In that case, they pick it up and decide to go to the store to see if the item is on sale at $39.99; they are likely to be unhappy and get back in line to request a price change.

To remain competitive, you need to have an omnichannel strategy. For businesses to succeed, they need a well-connected supply chain. They also require a process of inventory reconciliation in near real-time to give them visibility.

• Blockchain

Blockchain is often viewed as the foundation for digital currency like Bitcoin. That's only the start. Blockchain is a simple database for storing transactional data. Once created, transactions cannot be altered. A distributed ledger provides transparency to all parties, including members of private groups.

As an example, there are many companies that use blockchain to manage and control their inventory. Deloitte claims that the Blockchain decade will begin in 2020 and cites some innovative use cases to illustrate this. For example, firms can use blockchain technology to guarantee AP loans. Life sciences and health care are the top industries using blockchain, often to conduct clinical trials or digitize medical records.

Walmart and Nestle, among other food retailers, use IBM Food Trust's blockchain in the supply chain to eliminate uncertainty about food quality and safety, as well as to add efficiency to the chain and minimize waste.

Signing up with a consortium within the industry is likely required by companies looking to implement blockchain technology to gain insight and certainty into their supply chain. Deloitte suggests choosing a consortium with a transparent governance model, an egalitarian attitude towards participants, and broader adoption in your industry.

• Reporting and Analytics

Real-time analytics is a common theme in many of these trends. It allows for better decisions to be made, a customer-centric business model created, and costs reduced while efficiency increases.

In terms of inventory, businesses can make better forecasts and move towards just-in-time inventory replenishment by becoming data-driven. They also get near real-time information on shipment and supply locations and arrival dates.

But it's not sufficient to have large quantities of data. Businesses must view data as a valuable resource and utilize it to remain competitive. The following are some of the best practices for becoming more data-driven:

1. Gather data, even if you still determine what you will do with it. The more data you can provide, whether it's sensor data or images taken by a fleet of warehouse robots, the better your predictive analytics will be.
2. Choose software that is interconnected. Silos are not good for analytics. Inventory management software that can connect with other software, such as ERP, finance, and order management. Custom integrations can be expensive.
3. Demand that data back all decisions. Provide reports as evidence. Choose metrics that are important to you, such as supply chain or logistics KPIs. Track them regularly.
4. A deep dive into inventory control and management can benefit all production companies.
5. Act on the insights you gain. Team members who analyze data, issue reports, and never see any results from their work will be discouraged. Even rudimentary data analytics can be used by manufacturers to identify suppliers who are often late or need to deliver on their promises, as well as production bottlenecks and inefficient storage layouts. You can take predictive action by adding machine learning.

The Bottom Line

Inventory management plays a vital role in the operation of any business. Inventory management is dependent on what kind of products and business you have. There may be no perfect inventory management because each has pros and cons. It is important to choose the right type of inventory control style.

Get a Free Estimation or Talk to Our Business Manager!

Arion ERP can help you improve your inventory management. Inventory managers must improve their skills and learn new analytics and forecasting abilities to maintain or expand operations. Inventory management integrated business platforms such as Arion ERP can collect and analyze data, allowing you to embrace the latest trends and keep profit margins high.

The ability to manage inventory effectively can be the difference between success and failure for a company. And the faster technology develops, the greater the opportunities companies will have to gain insights. To stay competitive, it's crucial to keep up with these trends.