Reducing inventory costs starts with effective inventory management
So you want to know how to reduce the amount of capital you have tied up in inventory? This process involves more than getting rid of obsolete or slow-moving stock. Whether you’re new to B2B sales or you’ve been in the industry for years, you’ll know losing your customers’ trust can make or break your business.
So, what does effective inventory management look like?
Bad inventory management can look like relying on outdated Excel sheets or manually inputting inventory data. Systems without real-time integration can result in inaccuracies, difficulties in demand forecasting, and inefficient collaboration. These challenges hinder operational efficiency, increase the likelihood of stockouts or overstocking, and impede the ability to meet customer demands effectively. Adopting modern inventory management systems and software can address these issues and lead to more accurate, streamlined, and efficient inventory management processes.
4 effective strategies that help to reduce inventory costs
One sure way to lose a customer’s trust is to show inaccurate data about your stock levels. Meeting customer demand is a cornerstone factor in executing a successful business strategy. By managing your inventory effectively, you can follow through on the promise of fulfilling customer orders promptly. We’ve spoken to countless organizations that have searched high and low for ways to reduce costs when it comes to inventory, but the key lies in how you manage your inventory.
Strategy 1: Optimize demand forecasting and planning
The first step in this strategy is to look to the past – analyzing historical sales data helps you to set up forecasting based on demand patterns. Take season and global locations into consideration to effectively stock up of the correct stock items in the correct areas.
Real-time ERP data helps to improve demand forecasting accuracy. With real-time ERP data, B2B organizations have access to up-to-date information on sales, customer orders, and inventory levels. The impact of this is that inventory reporting no longer relies on manual processes and periodic data updates, leading to delays and inaccuracies in demand forecasting. Human error can be detrimental to your inventory planning.
Strategy 2: Streamline order processing and fulfillment
Did you know that natively integrating your web store with your ERP system in real-time, you can streamline your order fulfillment process?
Monitoring and prioritizing customer orders based on real-time inventory data ensures that popular products are readily available for immediate shipment. This process creates customer satisfaction and decreases the chances of products being out-of-stock.
Looking at improving your order fulfillment process through automation can potentially reduce costs of labor and order errors. By reducing time and resources spent on fulfilling orders, you free up working capital for other areas within your business.
Bierhandel de Wilde realized that B2B e-commerce was becoming more and more important and decided to undergo digital transformation.
Thanks to Sana Commerce “Everything is automated. A purchase order is automatically added to the system. Thanks to the automated system it is possible to work much more efficiently. We no longer run the risk of making unnecessary mistakes when typing in an order, which makes things a lot easier.”
Strategy 3: Leverage technology
There are many tools and systems that can automate and centralize all the data around your inventory – you should use them. By switching from manual entries and Excel inventory management, you reduce your negative impact on the bottom line. Some examples include making use of AI to detect when you are low on stock, or you could identify bottlenecks in your warehouse with heatmapping.
Another big example is leveraging your e-commerce platform to reduce order errors. In this case, your web store relies on your ERP as a single source of truth. Since there is only one source of data, there are far fewer instances of data inaccuracy, leading to far fewer order errors. Orders are automatically processed in the ERP, so there’s no need for manual data entry, which also means that there’s less room for human error. ERP integration also minimizes the strain on IT and increases your customers’ satisfaction and confidence in your business due to its guaranteed accuracy. Read more about ways ERP-integrated e-commerce reduces operational costs.
Just-in-Time (JIT) inventory management is a strategy that includes receiving and producing goods when they are needed in the production process or when customer orders are received. The main aim is to minimize inventory levels. This strategy leads to a reduction in holding costs, but increases operational efficiency, and eliminates waste associated with excess inventory. With Just-in-Time (JIT) inventory management, you can start with an understanding and analysis of the demands from historical data. You would then order your stock from your suppliers, making them fully aware of your JIT approach and making sure that they are able to deliver your stock on time.
Expert tips:
Continuously monitor and improve:
Regularly monitor key inventory performance indicators (KPIs) such as turnover ratio, stock accuracy, and order fill rate. Conduct periodic reviews and analysis to identify areas for improvement and implement corrective actions.
Keep track of the value of misplaced or damaged stock:
When you can’t sell a product for any reason, you absorb that cost into your business. Motivate your warehouse staff with incentives or challenges to keep the warehouse well organized and tidy. By making sure that all your inventory is in great condition, you save warehouse space while reducing capital wasted on unsellable inventory.
3 key focus areas to reduce inventory
1. Return orders
Setting up a well-structured and clearly defined return process can help you determine where you may be going wrong in the inventory process. In some cases, the cost of returning orders could far outweigh the value of the order itself. The starting point would be to get an accurate overview of the costs associated with your current return process and where the order errors are occurring. It is crucial to have clear guidelines of how your customer support teams can handle these situations. Do you give customers credit within your web store, instead of refunding the amount, in order to retain their business?
2. Order fulfillment
During the order fulfillment process, look at all the facts and reflect them accurately on your website.
If your stock items are packaged in groups of 6, it is important to display that you can only order them in groups of 6 on your web store. This makes inventory management so much easier when it comes to stock taking. Think about how many units get lost if you are continuously unboxing items from their packaging. This creates chaos in your warehouse and makes fulfilling orders more time-consuming and expensive.
3. Customer and supplier relationships
In business, strong relationships can revolutionize the way your customers look at you. By implementing a process that works best for your customers and suppliers, you build trust and ensure loyalty.
A cost saving exercise could include vendor-managed inventory (VMI) or consignment inventory arrangements to reduce your own inventory holding costs. VMI and consignment inventory arrangements ensure tighter collaboration and communication between customers and suppliers. This can lead to saving in procurement through various means, such as volume discounts, negotiated pricing, or better shipping terms – these methods don’t just create increased customer satisfaction.
Conclusion
In conclusion, effective inventory management and the implementation of strategies such as Just-in-Time (JIT) and effective forecasting can significantly reduce inventory costs and improve overall operational efficiency. By optimizing order fulfillment and focusing on key areas, businesses can achieve substantial savings while ensuring customer satisfaction.
By adopting these strategies and continuously monitoring and adjusting inventory levels, businesses can not only save costs but also gain a competitive edge in today’s dynamic marketplace. Ultimately, the pursuit of reducing the cost of inventory remains crucial for businesses looking to optimize their operations, maximize profitability, and drive sustainable growth.
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