How much time and money does your company waste because you aren’t taking advantage of automated inventory control. If you are an average marketer, either wholesale or retail, the answer is plenty!
The good news is that a recent enhancement to industry software means your company can quickly spend less time and money-managing inventory. The key, however, is to have the courage to actually use this part of your software.
Your software can’t solve the problem of selecting the right products to carry or the best ways to promote those products. What it can do, however, is accurately report and often-forecast customer trends and demands, alert you to old or non-moving products, and expedite your order and replenishment process.
To begin automating your inventory management, start simple. Use your system to alert you to slow-moving products. It is likely that your system already has the ability to do this, so ask your vendor. Essentially, for each product, you enter a desired number of days supply for that product. The computer then checks your inventory against your target supply, and alerts you via an exception report when you have exceeded that supply target.
To set your target supply, use 1.5 times the supplier frequency as a good rule of thumb. For instance, if you receive supply weekly on a certain product, you would set a target of 11 days. If you have a product that is only delivered every 30 days, a 45-day supply would usually be appropriate.
As new inventory is received and the sales cycle progresses, your system checks the total supply of each product against the target. The only items that get printed on a daily report are those exceeding the supply target. So, for instance, if you have an 11-day target on a certain item, and when today’s delivery is entered into inventory you have 15 days of supply on hand, an automatically printed report would alert you. That report would show the target supply, the amount on hand, and the overage or shortage for each item.
These types of exception reports are critical to good inventory management. In fact, in more sophisticated systems, projected targets (both higher and lower than an original target) take into account seasonal or cyclical variations. For instance, a good system can project targets based upon last year’s sales and your company’s growth rate. For greatest effectiveness, exception reports should be by site or location, not company-wide.
Once you have set target inventory levels by product and are using exception reports, the next step in inventory automation is using your data to predict customer demand. In most companies, the only time inventory buildups or shortages occur, it is due to a change in customer buying habits. Through analysis of exceptions, you can become more aware of customer buying habits, figure out why those buying fluctuations are occurring, and then alter your company’s buying habits accordingly. Again, the technology won’t tell you if you have the right products, but it will sure let you know when you have the wrong ones!
Next, you will want to use your system for ordering. At this stage, you are not on-line with your supplier yet and will still be placing your own orders. You will be using your system to create order triggers, which are based upon a minimum inventory target; product velocity and supplier lead-time.
More specifically, your system would generate an order based upon the anticipated inventory level on the supplier delivery day. Using the supplier’s correct lead-time and delivery date, each day your software system would automatically generate a report telling you what you need to order.
Your last big plunge in inventory management automation is to link your supplier to your system utilizing fully automated ordering. When fully automated, your system generates an actual order directly with your supplier. The system provides a report informing you of what has been ordered and the supplier provides you with a confirmation.
DO NOT enter into directly automated ordering until your inventory minimum and maximum targets have been fully tested for at least a few months. The last thing you want is to run out of product, so you must have your system fine-tuned before taking this last step.
It is also critical that you understand your suppliers’ product availability and are aware of any potential for backorders.
When entering this final phase, do it slowly, one supplier at a time until the system is working smoothly. Begin with a small supplier that provides your company with just a few products rather than your largest supplier. The less complicated the initial ordering process, the better. As you work the kinks out of the system and develop confidence in the systems you are creating, the more suppliers and products you can add on.
If you are in a situation of having only one major supplier who can accommodate automated ordering processes at this time, ask them to begin the process with only a few selected products. Add on more products as you become confident with the system.
Finally, once the system is smooth, don’t become complacent. You still must spend time anticipating customer needs, adding needed products, and marketing. Automated inventory management will never replace the need for product development and marketing. What it will do is free-up valuable time so you can market more effectively.