How industries use inventory management? How automation helps them?

How industries use inventory management? How automation helps them?

What is ‘Inventory Management?’

Inventory management refers to the process of ordering, storing and using a company’s inventory: raw materials, components and finished products.

BREAKING DOWN ‘Inventory Management’

A company’s inventory is one of its most valuable assets. In retail, manufacturing, food service and other inventory-intensive sectors, a company’s inputs and finished products are the core of its business, and a shortage of inventory when and where it’s needed can be extremely detrimental. At the same time, inventory can be thought of as a liability (if not in an accounting sense). A large inventory carries the risk of spoilage, theft, damage, or shifts in demand. Inventory must be insured, and if it is not sold in time it may have to be disposed of at clearance prices – or simply destroyed.

For these reasons, inventory management is important for businesses of any size. Knowing when to restock certain items, what amounts to purchase or produce, what price to pay – as well as when to sell and at what price – can easily become complex decisions? Small businesses will often keep track of stock manually and determine reorder points and quantities using Excel formulas. Larger businesses will use specialized enterprise resource planning (ERP) software. The largest corporations use highly customized software as a service (SaaS) applications.

Appropriate inventory management strategies vary depending on the industry. An oil depot is able to store large amounts of inventory for extended periods of time, allowing it to wait for demand to pick up. While storing oil is expensive and risky – a fire in the UK in 2005 led to millions of pounds in damage and fines – there is no risk that the inventory will spoil or go out of style. For businesses dealing in perishable goods or products for which demand is extremely time-sensitive – 2017 calendars or fast-fashion items, for example – sitting on inventory is not an option, and misjudging the timing or quantities of orders can be costly.

For companies with complex supply chains and manufacturing processes, balancing the risks of inventory gluts and shortages is especially difficult. To achieve these balances, firms have developed two major methods for inventory management: just-in-time and materials requirement planning.


Just-in-time (JIT) manufacturing originated in Japan in the 1960s and 1970s; Toyota Motor Corp. (TM) contributed the most to its development. The method allows companies to save significant amounts of money and reduce waste by keeping only the inventory they need to produce and sell products. This approach reduces storage and insurance costs, as well as the cost of liquidating or discarding excess inventory.

JIT inventory management can be risky. If demand unexpectedly spikes, the manufacturer may not be able to source the inventory it needs to meet that demand, damaging its reputation with customers and driving business towards competitors. Even the smallest delays can be problematic; if a key input does not arrive “just in time,” a bottleneck can result.

Materials Requirement Planning

The materials requirement planning (MRP) inventory management method is sales-forecast dependent, meaning that manufacturers must have accurate sales records to enable accurate planning of inventory needs and to communicate those needs with materials suppliers in a timely manner. For example, a ski manufacturer using an MRP inventory system might ensure that materials such as plastic, fiberglass, wood and aluminium are in stock based on forecasted orders. Inability to accurately forecast sales and plan inventory acquisitions results in a manufacturer’s inability to fulfil orders.

4 Industries That Can’t Ignore Inventory Management

Inventory management is one of the keys in turning a small business into a large, successful corporation that’s able to generate millions of dollars in annual revenue. However, the act of scaling doesn’t come without its own set of hurdles. If your business is in the food distribution, ecommerce, consumer goods, or electronic devices industry, it’s time to listen up. Inventory management is of the utmost concern.

  1. Food Distribution

For restaurants, schools, supermarkets, and other organizations that interact with and rely on food on a daily basis, inventory management is vital. There is a very fine line between having too much and too little.

According to the National Food Service Management Institute’s Inventory Management and Tracking Reference Guide, “Food and supplies purchased, but not immediately used (inventories), often represent a significant portion of operational revenue.” The guide continues,“One classic method of controlling food cost is to maintain inventory levels high enough to ensure menu items can be produced in the right quantity, but low enough to not have excess product sitting in storage. This is called inventory control.”

While excess inventory in many industries is nothing more than an inconvenience, too much inventory in the food distribution industry often means wasted money and/or health concerns. Excess inventory over extended periods of time can lead to spoiled food that has to be thrown away.

On the other hand, not having enough inventory can also cause financial setbacks. If you aren’t able to accurately forecast demand levels, you won’t be able to supply customers with the meals, ingredients, or supplies they need.

There are dozens of different strategies for enhancing inventory management and forecasting accuracy in the food industry, but it all comes down to the organizations, budget constraints, and industry regulations. Regardless, it’s clear that inventory management is important to businesses and organizations involved in food distribution; ignore it at your own peril.

  1. Ecommerce

Inventory management is rather unique to ecommerce businesses, because very few actually physically maintain their own inventories. Unless they also have a physical retail presence, many choose to drop ship. However, whether you maintain your own warehouse or use a third-party partner, maintaining proper inventory levels is critical to success.

One of the single biggest challenges for ecommerce businesses is that they have to deal with global distribution and around-the-clock order processing. For example, a company based out of Nashville, Tennessee – with office hours of 9am-5pm central time – must be able to fulfill an order for a customer in Shanghai who completes an order at 1am central time.

“The nature of online businesses is drastically different in scale and operations,” says Entrepreneurial Insights.“As a result, the scale of inventory also ranges from massive, multiple warehouses to stock kept in a home garage. Regardless of the nature of the operation, it is vital to keep accurate records and track of the inventory at all times.”

For ecommerce businesses, it all comes down to choosing the right platform and software solution that’s able to cohesively synchronize inventory across multiple channels and provide real-time updates for top-down visibility.

  1. Consumer Goods

For physical retailers in the consumer goods industry, inventory management is tricky. This is due in large part to the volatility of forecasting. Seasonal changes are especially important, as different times require totally different inventory levels. However, while proper inventory management isn’t something all consumer goods companies have mastered, the majority realizes the significance of shoring up this area of their businesses.

Consider the following findings from a recent report, Inventory Optimization: Still a Supply Chain Priority.

While 69 percent of companies still rely on static spreadsheets and archaic programs, 69 percent of company vice presidents rank inventory optimization as one of their organization’s top priorities.

Improving customer service is cited as the primary reason for implementing an inventory optimization system that enhances forecasting accuracy.

One of the top new initiatives for organizations is the need to integrate sales and operations planning with inventory optimization.

“The research clearly shows a large opportunity for consumer goods companies to improve their supply chains through more advanced inventory optimization initiatives,” says industry expert Mike Edenfield. “Inventory optimization’s proven benefits, including cost reduction and improved customer service, are critical in today’s dynamic global market.”

  1. Electronic Devices

Organizations in the electronic devices industry especially need better inventory management controls. Depending on the types of products a company sells, individual units can cost hundreds or thousands of dollars. As a result, under or over-forecasting is much more costly than it is to a consumer goods company with SKUs that only cost pennies on the dollar.

But inventory management isn’t all about monitoring inventory levels and forecasting demand. There’s also a major need for things like location tracking, financial management, and customer management. Having a robust software solution that handles every phase of inventory – all the way from the stocking process to anticipating future needs – allows companies to establish sustainable businesses that can withstand occasional miscalculations and errors.

Don’t Look Past Inventory Management

Whether your business is involved with food distribution, ecommerce sales, consumer goods, electronic devices, or anything in between, it’s incredibly important that you pay attention to the value of proper inventory management. Spreadsheets may have worked in the past, but today’s marketplace is much faster paced. If you want to succeed, you need the right tools.

Every company needs an inventory management system. Whether you’re in wholesale, retail, service or virtually any other industry, you have to keep track of your products. Here are five reasons why it’s so important to use small business inventory software:

  1. Stop products from spoiling

If you have too many products in your warehouse, you increase the risk that they will become obsolete, damaged, spoiled or stolen before you can sell them all. Depending on which industry you’re in, you’re probably more worried about some of these risks than others. For example, if you’re in the technology industry, you don’t want your expensive products to become out-dated, damaged or stolen, but you probably don’t care about their freshness date. Food producers, on the other hand, put product spoilage high on the list of inventory management concerns.

  1. Stop paying hidden costs

Having too much inventory doesn’t just increase your risk of paying more in the future; it costs you more money all the time. Where will you store the extra inventory? You may need to buy a larger warehouse than you really need or rent trailers if your warehouse isn’t big enough. Plus, you have to provide security to prevent theft. And don’t forget about the money that’s tied up in inventory that you could have used to hire personnel or grow your business in other ways.

  1. Stop disappointing customers

On the other end of the inventory spectrum, if you have too few products in your warehouse, you face a whole other set of risks. Your customers don’t want to wait too long to get their orders shipped to them. So if you run out of the products they’re looking for or if your picking, packing and shipping processes are too slow, you could drive customers away.

  1. Stop wasting time

Inventory management can be time-consuming, especially if you’re trying to do it by hand or in Excel spreadsheets. Speed is everything in business. How fast you reorder products, ship customer orders and update your inventory records could make or break your company. That’s why an automated inventory management system is so important. Scanning product barcodes and setting up automatic reorder points can save valuable time by streamlining complex processes.

  1. Start planning ahead

You can’t afford to be purely reactionary in your inventory management. You need to start planning ahead and being proactive. Instead of being unprepared for sudden spikes in sales, try to notice these trends ahead of time by monitoring social media channels for mentions of certain products and looking at historical records to spot seasonal upticks in sales. All of this is easier said than done. It goes back to having a powerful inventory management system to free up your time and do most of the data analysis for you.