Lower Your Costs by Using Inventory Tracking Software

Educational Resources

Inventory tracking software can help companies achieve significant cost savings while enabling the right balance between fast item availability and lower inventory carrying costs.

A major balance sheet item for any company that sells products, inventory can tie up significant capital while it sits on the shelf waiting to be sold. A company with 40 percent margins shells out 60 percent to cover the cost of goods sold. That means 40 percent of the organisation's net sales are spent on shipping and inventory. Those items also need to be ordered, stored and managed—all of which are labour-intensive processes.

“The problem we see most frequently with inventory is that companies have too much of it, and rarely too little of it,” Ian Hobkirk, President at Boston-based Commonwealth Supply Chain Advisors, told Logistics Management. “We can show them, mathematically and six ways to Sunday, how to reduce those inventory levels, what the stocking levels should be for each SKU and so forth. However, at the end of the day inventory is a security blanket that's largely rooted in emotional decisions—logic just doesn't apply.”

Companies are avoiding this challenge by using inventory tracking software that provides real-time inventory visibility, demand planning, automatic reorder points and more efficient procurement. By effectively removing the “emotional” component of inventory management, and by putting real data and insights into the warehouse manager's hands, these solutions enable a more streamlined, reliable inventory management approach.

When they converge, these individual “wins” translate directly into cost savings for the companies that are using the inventory tracking software. Wholesale distributors that implement and use such solutions, for example, have been known to reduce their inventory carrying costs by an average of 30 percent. Here's how they're doing it:

• Using real-time visibility. Knowing exactly where stock is at any given point in the day can help companies avoid the “black hole” of manual inventory management. By taking the guesswork out of the process, inventory tracking software helps companies optimise their end-to-end supply chains while keeping tabs on product movement. This, in turn, creates better business efficiencies, lower inventory carrying costs and happier customers.
• Leveraging demand planning. Effective inventory management requires foresight into what customers are (or aren't) going to want, when they'll want it and where it will need to be shipped to. Using an inventory tracking solution that incorporates demand planning, companies can more accurately predict demand for specific items at specific points within the supply chain. This translates into better stock levels, an optimised warehouse and yes, you guessed it, lower inventory carrying costs.
• Setting automatic reorder points. In today's competitive business environment, companies simply can't afford to be stuck without needed inventory. Using an inventory tracking system's automatic reorder points, purchase orders can be automatically generated as soon as a company hits the “reorder point” on any product, raw material or other item. This results in more consistent stock levels, less over-ordering and a reduction in the volume of safety stock, all of which equal major cost savings over time.
• Avoiding out-of-stocks. In an era where customers expect orders next-day or two-day, and where the nearest competitor is just one click away, companies are doing everything they can to avoid out-of-stocks. According to CNBC, out-of-stocks, overstocks and returns cost retailers $1.75 trillion a year—a number that's only moving higher. A tool for organising inventory that used to be stored on clipboards, in disconnected IT systems or in a warehouse manager's own head, inventory tracking software eliminates the guesswork and gives companies greater control over their businesses. It also helps manufacturers, distributors and retailers avoid the dreaded “stockout” label, cultivates repeat customers and saves both money and time.

Checking Off the Important Boxes

Ultimately, companies need to know that the right product is available when a customer wants it. They also want to reduce the costs of ordering and maintaining those items while minimising the carrying costs of stocking those items for sale. Using inventory tracking software, organisations can check off all three boxes (and more), while also streamlining their overall supply chains and gaining unexpected efficiencies along the way.

By tracking inventory as it moves between locations, receiving items into the warehouse, tracking sales and inventory levels, and providing intelligent control over inventory replenishment, inventory tracking software ensures that sufficient stock is on hand for filling all anticipated orders—all while keeping excess stock to a minimum and improving the organisational bottom line.