Have you heard about inventory management before? Probably you might have a few inventory management solutions implemented in the supply chain. But, what’s inventory optimization? Inventory optimization or IO is the supply-chain management technique that eliminates having excess inventory when maintaining an accurate number of the inventory to meet your consumer demand & revenue goals.
For this reason, many businesses are investing in high-end inventory optimization software, so that they are able to rightly manage the inventory without any physical effort and that saves time. At present, inventory optimization is quite important for the small and mid-sized businesses, with an aim to save huge dollars in the working capital just by reducing the inventory without troubling sales and operations.
Looking at the Fundamentals of the Inventory Optimization
The concept of inventory optimization is quite clear now: it is to manage the inventory levels and meet predetermined levels and minimize the amount of capital that is tied up unproductively in the inventory. The difficulty is future demand cannot be predicted, and risks of the stock-outs include:
- Interruptions in the manufacturing process
- Sales lost
- Lesser revenue
- Loss of valuable customers
Important Roles of the Inventory
Buffering any uncertainty in the demand and supply – The managers hardly know with certainty the amount of demand for their product in the future, nor they will know how long it can take to replenish the inventory when demands increase.
Balancing Supply & demand – Holding the inventory makes any organization to implement the batching of production and cover demand for the product when it’s not getting produced.
Allowing buying economies – For many reasons, the supply managers might buy a bit more inventory than they need currently. Often, the suppliers provide price discounts that will encourage the customers to buy bigger quantities at a time.
Evaluate Your Business
To know why inventory isn’t optimized, it’s very important to know Order-to-Delivery, or how the inventory will be processed & ordered throughout a company.
Gathering inventory data and trends in the previous years, defining the maximization goals, and checking the people and businesses liable for various tasks all along the process can be important to efficiently change an inventory supply chain procedure.
The demand must be forecasted and characterized to its best abilities, and inventory timeline and service level must be determined in advance.
Measure Your Inventory Performance
When you establish important standards and metrics where inventory performances are compared, make sure it helps to know how effective the inventory plan works out, or if the goals are rightly met.
When you directly compare your inventory optimization and efficiencies between different time frames, businesses will understand several factors that contribute to highly optimized inventory and contribute to less.
Whereas consumer demands are unpredictable and volatile, having a pre-determined plan, techniques to evaluate success, and the right assessment of your business’ situation can help to create important change in your business’ inventory solution & efficiency level.
Better Inventory Management Means Controlled Operation Costs
The inventory optimization software saves you money as well as helps to fulfill your client’s needs. Thus, it allows the successful control of the operations. When you know what you are having in-store, in your warehouse, or how to manage your supply chain rightly is the backbone of any business.
Inventory management and optimization help you make smart decisions & close sales. This gives you the right information on what sells and what stays back, and what you must order more, and what you must cut down to improve profits.
When you get the right knowledge about your customer needs and demand is key to the right inventory management. When you know how your customers think and buy, you will be able to make smart buying & storing selections.
You need to know that tying up plenty of money in the inventory can get your company down and not spending much can even hurt the customer service. You will find a middle ground with the right inventory management.
While it comes to improving business performance, one best thing is data. However, having plenty of data will be worse than not having enough—and you will be completely buried in the reports that you may miss on important indicators that can be beneficial for your business.