A lot has been said about inventory management, but it still isn’t complete without a discussion on real time inventory management.
Inventory is often proclaimed to be a necessary evil especially in the retail business. Who would want to risk a customer loss arising out of product shortage? If they want it, you ought to have enough to sell. But the classic question has always been regarding how much is enough.
To understand its implications, the very first realization that one ought to have is that inventory costs are not only those that you see in everyday life. They extend much beyond the everyday costs in the form of additional money that you need to put in to keep the business running. Inventory is the number one cash eater.
What Is Real Time Inventory Management?
Real Time Inventory Management basically means managing inventory as and when it depletes. A large part of this strategy depends on technology, which is why its initial cost scares some skeptics.
The technology involved is basically RFID chips and barcodes. They keep a track of all of the inventory that is coming in and out of the store. The benefits of being able to do so can be many. All you need to do is to ensure that you get a few things in place. You will need to know:
How many units do I order?
How much time does the supplier need to fulfill this order?
What point am I going to order?
Most retailers order in a time bound manner. They always seem to have enough of what is not in demand in the market.
It is important to understand the value real time information adds to a supply chain. You are not forecasting anything or relying on any guesses.
Rather, you are reading the mind of the market and acting accordingly. At the same time apart from inventory costs you would cut down on a lot of storage and administrative costs also since you wouldn’t need a huge warehouse or a stock clerk.
How It Works
Reduces fixed costs: Fixed costs are a burden on a retailer’s shoulder. They drain profits. With the help of a real time inventory management system, you can bring them down to the minimal level. You could make your organization much leaner by virtually eliminating the purchase department. They won’t need to forecast the demand or place orders. All you need to have your suppliers ready; the system will do the rest. Also, since it is largely automated, the chances of error are much less. Machines are not as forgetful as humans are.
It is not uncommon to be stuck with products that your customers no longer want. Demands change faster than you can imagine. Now imagine selling multiple variants of multiple products, you are bound to be left stuck with some unsold inventory. With real time inventory management, you can gauge the pulse of the market by keeping a track of what is sold and when it needs to be ordered, thereby reducing these costs to a bare minimum.
Eliminates Stock Outs: Stock outs and shortages are results of errors in forecasting demand. While most of the earlier discussion was about reforming the methods of forecasting, real time inventory management has bought a new perspective. It eliminates the need to forecast and thereby eliminates all the errors associated with it. If the demand runs fast, so does you’re ordering cycle. This is called flexibility of the supply chain.
Improves Customer Relations: A recent study has exposed that there are some “Universal Customer Expectations” that the customer expects from every seller they deal with. These are maximum choice, maximum value at lowest price. With the help of real time inventory management, you can easily offer all three.
Simplifies Work Processes: Real time inventory management significantly reduces the error rate. Since a lot of work is automated, there is less chance of error. Moreover all your processes run on facts rather than on forecasted projections.
How to Choose?
There are many options available in the market today. Each business is different and therefore by extension the inventory needs of each of them are also unique. Real time inventory management helps any business.
Modularity: It is essential that the real time inventory management solution that you look out for is modular. Modularity basically means the ability to choose the specific features that you may desire rather than taking the whole package.
Modularity is so important because these inventory management systems are means to serve the interests of many organizations that have diverse business interests. You may not require half of their solution but the other half maybe invaluable to you. So modularity allows you to choose the solution that you think is best.
Ease of Implementation: Inventory management systems are easier to procure than to implement. A lot of these systems are complex and require training the staff, or sometimes you may have to hire new staff skilled enough to take care of this. So, the choice is, whether the system will save you enough money to offset the increased training costs and still be valuable. Do not forget to consider the time value of money.
Integration: The ability to measure the changes gives the manager the knowledge of what’s working and what is not, and it is this ability which must be harnessed to evaluate the efficiency of the inventory management system.
So it is essential that the system integrates with accounting, human resources and other such systems, which are generally used in an organization.
A very common mistake is to draw inventory reports from the new system and continue with financials and other reports in the previous way. This gives an inaccurate position of how effectively the materials, staff, money and other resources are employed.
In the End
Big businesses and small businesses generally have an efficiency gap between them with the bigger players being better. It is imperative that a small business grows and thrives by adapting to gain a competitive edge over smaller competitors.
Real time inventory management is still a relatively unknown commodity. So unleash the potential of this powerful tool and gain competitive advantage.