In our last article in this series on inventory management, we explored three ways that you can improve your inventory management system. We mentioned a cloud-based inventory system as the first tool you can use, and thought it was worth exploring further.
Depending on where you are in your wholesale business development, you may be wondering if you should upgrade your inventory management system. Emphatically, the answer is yes. With the exception of the smallest businesses, every business that has a physical inventory can benefit from a system that offers real-time tracking, cross-location usability, and historical reporting. Even the smallest business should consider it if they intend to scale and grow.
Business software consultant Capterra defines an inventory management system as:
"Inventory management systems track goods through the entire supply chain or the portion of it a business operates in. That covers everything from production to retail, warehousing to shipping, and all the movements of stock and parts between. Practically, it means a business can see all the small moving parts of its operations, allowing it to make better decisions and investments." via What Is an Inventory Management System, and What Features Do I Need? - Capterra
Why Should I Invest in an Inventory Management System?
A great inventory management system can do wonders for your wholesale business. Improve your profit by keeping better track of your inventory and forecasting demand more accurately.
A good inventory management system truly is an investment and not just an expense. In the 2016 National Retail Security Survey, researchers assessed that administrative and paperwork errors accounted for over 16% of lost inventory. Besides the cost of lost inventory, which every business seeks to minimize, you should also consider:
- More Accurate Forecasting: Around 60% of businesses reported that their inventory forecasting accuracy was below 80%. This makes it impossible to accurately predict customer demand. Wholesale distributors sit between the manufacturers and retailers. Accurately forecasting demand is how you stay ahead of trends and seasons. Real-time tracking and reporting of your inventory allows you to drastically improve your customer experience. Through this sort of reporting you can also make sure your inventory is localized to each store or outlet that you work with.
- More Resources for What Matters: When your inventory is in disarray, you spend additional time chasing down products and conducting audits because your records don’t match the reality in your warehouses. You’ll save money through precise reorder numbers and higher employee productivity.
Characteristics of a Good Inventory Management System
There are a few capabilities you’ll want to look for in an inventory management system. You want a system that takes the guesswork out of your business. All of your decisions should be data-driven, and the best systems on the market understand that. Whether you’re working from Excel or your current system makes you unhappy, there are a few characteristics you should look for:
- Real-Time Tracking and Reporting: Any system you decide to purchase should offer this feature, no questions asked. Real-time inventory reporting is one of the main benefits of a cloud-based inventory management system.
- Reordering: This one stems from the first point about real-time tracking. If you have real-time tracking, reordering alerts are another important feature. Paired with a safety inventory level, you can set up most systems to prepare an automatic order for your various products. You may not want it to actually order without your approval, but receiving an alert to review an automatically generated order spares you or your warehouse manager from the mental load of having to remember—and the guilt from forgetting!
- Does It Integrate?: If you’ve invested in a system that wasn’t a good fit for your company, a new system that integrates with parts of your current inventory management system will save you money and time.
A cloud-based inventory management system allows you to generate real-time reporting based on how your warehouse looks right now.
Components of an Inventory Management System
We’ve told you which features we consider important in an inventory management system, but you have to make this decision within the parameters of your business’ unique circumstances. Here are a few questions to help you whittle down your choices:
- Where is your business struggling, and how can an inventory system help with your challenges?
- What is your budget for a new system?
- How much time and money will you have to invest into learning the new system?
Next, you’ll need to take a look at the necessary software and hardware.
Common Inventory Management Software Features
Most inventory management systems offer similar features. Based on your answers to the questions above, your system may offer:
- Real-time reporting
- Inventory forecasting
- Inventory reorder alerts
- Various hardware integrations
Manufacturing Inventory Management
At the very beginning of the process, we have manufacturing inventory management. This portion of the supply chain usually focuses on work orders and bills of materials. You’ll need to tie both of those to your existing materials. So you’ll want your inventory management system to include:
- Tracking of materials
- Inventory amounts for finished products and their parts
- Automatic reordering
- ERP integration
You keep your business profitable tying the work being done to the materials your employees are using. Depending on the nature of your business, you may also want a system that connects with a warehouse management system. With today’s cloud-based systems, so much is possible.
Warehouse Inventory Management
Warehouse management differs greatly from manufacturing inventory management. Great strides are being made in this area all the time. Some warehouse inventory management systems even include robots and AI to maximize efficiency. Some of the features valuable in warehouse management include:
- Cross-location support
- Order picking support
- Advanced barcode systems
- Reordering alerts
Warehouse inventory systems may alert you to better warehouse layouts based on which items are often ordered together. Sometimes these correlations may seem counterintuitive, but Capterra gives a great example:
“You think the letter paper and legal paper should be next to each other in the warehouse because—well, obviously they should be. You want paper, so you head to aisle Z4. Voila! Paper. What you don’t realize is that letter paper is often ordered at the same time as staples. Letter paper is almost never ordered at the same time as legal paper.
Inventory Management Hardware
You’ll need certain hardware items to complement your software system. In order to take advantage of the analytic capabilities of your system, your employees will need equipment they can carry around with them that connects to the software system.
Hardware you should consider for your system:
- Barcode scanners and printers: You can select barcode scanners customized to your industry. Some barcode scanners are more rugged for harsher environments, and there are even scanners that are disinfectant ready for medical industries.
- Mobile computers: These can be incredibly useful if some of your inventory is outside. They can have the standard 38 keys or have touch screen capability. These computers can also be shatter- and drop-resistant.
I Can’t Just Use Excel to Manage My Inventory?
Well, there is can and then there is should. We’ve got a few reasons why you should not:
Human Error and a Steep Learning Curve
So let's say you have an Excel wiz set up your spreadsheets, and it’s this wonderful mass of complex formulaic data. Everyone on your team learns how to input data into the system, but only that one person can make changes or fix errors when something breaks. Should that person ever leave your organization, you’re going to need a new Excel champion. Should that person leave your company unexpectedly, you’re going to need a new system.
Murphy’s Law states that “anything that can go wrong, will go wrong.” This means that the day that person leaves is the day your Excel system will fail you.
It’s Not Professional and Doesn’t Show History Easily
If you’re trying to present yourself as an innovative company, working out of Excel just doesn’t look professional. Not to mention, showing your company’s history is a way to show progress. These programs don’t do a great job of that, which means you won’t be able to forecast as accurately as you can. Inaccurate forecasting is money lost.
Lacks a Hardware Connection
Probably the most important consideration is that a spreadsheet process like this doesn’t communicate with your warehouse floor. There is no communication or real-time collaboration through the use of barcode scanners or mobile computers that keeps your spreadsheet up to date. Your employees will have to manually input this data into your spreadsheet, leaving room for human error.
“Accurate financial reports are essential to running your business efficiently. Spreadsheets are prone to errors—just one bad cell can distort the numbers you use to make important decisions.” via The Problem with Running Your Company on Excel or Google Sheets- Quickbooks
Despite seeming like a cheap inventory management solution, spreadsheets will likely end up costing you more in resources (time, money, manpower) in the long run.
You Should Run Your Inventory Management System, Not the Other Way Around
With today’s technology, wholesale distributors face similar problems to brick-and-mortar retailers. One of their advantages is that we will always need the warehouse. We will always need a place to store inventory before it is purchased. However, in order for wholesale distributors to meet the expectations of their customers and partners, they must innovate and upgrade. Part of running a lean business means incorporating technology that allows you to quickly make and execute decisions.
Have you upgraded to a cloud-based inventory management system? What changes did you see in your wholesale distribution business?