How Inventory Control Works Across Different Types Of Business
It's one of those things is not always obvious of focused on until you don't have it or there's a problem with it. Then it becomes your biggest headache. How inventory control works across different types of business is one of the most important business skills and knowledge pieces you can know regards of whether your business is service or product based, everyone can be impacted by inventory problems.
SMB Consultants bring together people, platform and processes to grow inventory based businesses. Wholesale, retail and manufacturing businesses come to us daily to get assistance to implement the right systems to increase efficiencies in their businesses. Before we give recommendations we have a client focused approach to understand their circumstances. As a part of this we also work through with the client their understanding of inventory so we are all on the same page to maximise their efficiencies.
Most businesses have inventory to some extent. Inventory is the stock on hand to manufacture the goods you sell or it’s the goods themselves. Inventory control includes the methods used to manage the inventory you have in stock. This includes everything from how many items you have on the shelf to how much they cost and the amount of time it takes to replenish your stock.
Inventory is the cornerstone of any wholesale, retail or manufacturing business.
Here we cover what an inventory control system is and how they work for different type of businesses. These details are especially useful if you're considering implementing a cloud based inventory platform in your business like Dear or Cin7.
According to Urth, the capability provided by Cin7 – and SMB Consultants help in taking advantage of it – is “priceless.” They simply could not have tackled it by themselves. Instead, adding SMB Consultants insight and advice to Cin7 has saved them having to hire back-office or development staff.
A strong inventory system tracks goods through the supply chain including purchasing, shipping, receiving, warehousing, and returns. It should show you what inventory you have available, where it is located and when you need to reorder.
The best systems operate in real-time to provide an accurate picture of what’s in stock, where it’s located, and when it’s time to reorder. Inventory control systems give you an overhead view of your top performing inventory as well as any slow moving inventory. Computerised systems reduce the risk of human error.
How much you spend on inventory impacts every part of your business. Better inventory control equates to higher profit margins.
A successful inventory control system has multiple moving parts. This is a key difference to manual pen and paper solutions. Manual inventory systems rely on accurate manual work and clear counting that's often done multiple times to cross check work. Manual inventory control is highly susceptible to human error.
User-friendly, cloud based inventory control systems give you all the advantages of a dedicated solution with minimised errors.
Inventory management vs. inventory control
Inventory management is the process of ordering and storing raw materials and finished products. It is understanding the market, forecasting sales, and ordering the relevant levels of stock. Inventory management is having inventory oversight. It forecasts and projects the difference between having too much or too little inventory.
Inventory control includes day to day activities such as receiving raw materials, products, or other inventory, checking for any discrepancies, storing and transporting inventory to and from customers as well as within the warehouse. Inventory control also includes managing returns.
Why is inventory control important?
Essentially inventory control is there to reduce costs and improve service. Having successful inventory control is having the right product in the right place at the right time. Maintaining stock is essential in meeting customer expectations.
The main objective of inventory control is to keep only the necessary units on hand without overspending or compromising customer service. Depending on the type of business you run has different type of needs from your inventory control. Below we delve deeper in how to support your business.
Inventory control for online businesses
Inventory control aims to increase profitability and efficiency and ensuring customer needs are met without compromising profits. Inability to accurately count stock can lead to stock outs, unfulfilled orders, and disappointed customers.
The ordering experience should be fast and simple.
To keep returning and happy customers, you need to avoid or minimise customer complaints – strong inventory control helps you do just that. In addition, it helps you:
Make the correct inventory management decisions
Keep stock counts accurate
Ensure orders are fulfilled accurately and timely
Eliminate slow-moving stock
Quality assurance and control helps track suppliers’ inventory. With the help of inventory control, you can quickly react to product recalls or other product defects. Proper quality assurance contributes to a positive company reputation.
Optimising inventory levels
Maintaining stable inventory levels is key to generating strong profits. Too much inventory leads to increased overhead expenses, and too little inventory prevents your business from keeping up with sales.
A good inventory control system lets your business maintain a bird’s-eye view over your business. You become more resilient and able to avoid or mitigate out-of-stock scenarios.
Optimised inventory levels help manage:
Dead stock, or inventory that is unsellable
Sell throughs, or shortage of inventory
Faulty, or unusable inventory
Inventory control is crucial to keeping customers on your site. Competition is fierce with online retailing. Customers can easily shop anywhere with just a few strokes of the keyboard.
Inventory control for wholesale businesses
Inventory is usually one of the largest expenses to your business, right behind payroll. Ensuring you store only what you need to meet your customers’ needs improves cash flow and profits. This is particularly important for wholesale businesses that often maintain large warehouse spaces.
Keeping track of goods
An inventory control system identifies where the product is and how to find it in the warehouse. In addition to the location, an effective system keeps track of the quantity on hand.
An accurate system helps you organise your work within the warehouse. Providing you with the ability to know what you have, how much you have, and where it is located in the warehouse therefore increasing picking efficiency and man hours.
Allowing you to avoid under or overstocking by properly utilising warehouse space
In a large stock facility it is easy for things to become unorganised and for pieces to get lost. Not only does this increase the incidence of dead stock, it makes it very difficult to manage the space efficiently.
An inventory control system is important for wholesalers who maintain larger amounts of inventory where hand-counting just doesn’t make sense. It minimises under-stocking and overstocking.
Tracking incoming and outgoing inventory
Throughout the day, it is essential to keep track and monitor order fulfilment. A well working inventory system manages day-to-day transactions in real-time ensuring orders are filled correctly and delivered to the correct buyer. And, in the unfortunate event a product is returned, it is accounted for and properly disposed of, returned to the original manufacturer, or restocked for sale.
“It’s great being able to look back and see the changes that we’ve made. I think Bill is being a bit humble, knowing how much change he’s actually made, but when you look at how much inventory and overhead he’s reduced, while increasing sales — that’s a winning recipe. It’s been great to be able to grow together.”
Inventory control in supply chain management
The supply chain includes the core activities required to turn raw materials into finished goods such as securing materials, manufacturing, and transportation to customers. Tracking the product as it moves through the supply chain is crucial to avoid disruptions in distribution.
Inventory control along the supply chain is important to maintain a functioning supply chain. Below are the main points of successful inventory supply chain management.
Inventory turnover ratio
Inventory turnover ratio is one of the key metrics for successful inventory management. It shows how much inventory is sold within a defined time period. Maintaining a balanced inventory turnover ratio is important to generate profit.
This ratio will let you know if you’re wasting money on stocking slow moving items or overstocking as well as if you have a break along the supply chain. A low inventory turnover ratio indicates too much of your inventory is sitting on the shelves. Whereas a high inventory turnover ratio means items are flying off the shelves. In other words, the demand is exceeding or just meeting supply. This can lead to deficiencies and lost profits as market demand changes.
Maintains cash flow
An effective supply chain inventory management system ensures what comes in also goes out; thus maintaining cash flow through the business. The three core steps in inventory management include: purchasing inventory, storing inventory, and profiting from inventory.
When inventory is purchased, that money is tied up until that inventory sells – it’s essentially tied up in the promise (or hope) of a sale. Part of inventory control is data analysis that includes the lifecycle of inventory – from receiving to selling.
Inventory control can help businesses maintain a short cash conversion cycle (CCC). The shorter the CCC, the healthier the business is. The CCC is maintained when a company collects outstanding payments quickly, correctly forecasts inventory needs, or pays its bills slowly – running a short cash conversion cycle requires effective inventory forecasting.
Improve customer service
All businesses essentially want customer satisfaction. One way this is achieved is with same-day or 24-hour delivery schedules. Another is ensuring questions are answered and the correct products are sent. Knowing your stock levels and inventory locations are key to ensuring this customer satisfaction is met.
Handling a customer’s issue accurately and quickly goes a long way towards ensuring a positive brand image which leads to future business.
SMB Consultants understand and work extensively with cloud based Inventory Systems for retail, wholesale and manufacturing businesses. We are platform agnostic and take pride in our independence when making recommendations to clients. We have a client first approach to enable the best fit for your circumstances. Contact us today to see how we can help you transition to the best cloud based solution for your circumstances.