4 questions and answers for optimal inventory management
4 questions and answers for optimal inventory management
October 2023 - Empty shelves lead to increasing delivery times and dissatisfied customers. But excessive stock levels are also bad news for the profitability of your business. How to find the optimal stock level and four other crucial questions around optimal stock management, we answer in this article.
1. What impact does the stock have on my profits?
Stocking and managing stock is expensive. Cost includes warehouse rental costs, depreciation on warehouse furniture, maintenance and energy, capital costs (such as interest on warehouse loans) and the risk factor (costs inherent in the risk of stock management, such as obsolete goods).
All these costs cut into your profit margins. With a well-thought-out inventory strategy, you keep such costs manageable. Manual inventory optimisation plays an important role in this, but the biggest gains are made by using inventory management software.
2. How do I determine the delivery time for my product range?
Efficient inventory management is about finding the right balance between service and cost. In the ideal scenario, a shop or wholesaler can deliver any product within one working day. In practice, however, this is impossible. The associated inventory costs would skyrocket.
So retailers have to weigh up what is a feasible (and competitive) delivery time for their products, and what percentage of their orders they want to deliver on time and in full (On Time, In Full or OTIF). Not every item needs to be treated the same way in the supply chain. For critical items, an OTIF percentage of 97 is desirable, while for fringe products, a lower percentage is acceptable. Such trade-offs depend, among other things, on the rotation rate (how long a product stays in the warehouse on average) and the nature of the customer (loyal customers deserve better service).
3. How do I determine the optimal stock level?
In fact, stock behaves like an investment. Sooner or later, you expect a return on investment. Therefore, the question you need to ask yourself with every inventory change is, "Does it pay for me to invest in stock and will I make enough profit on it?"
For items with a low-profit margin, limited stock is sufficient. It is in your interest to keep stock turnover as high as possible, or in other words, to get items out the door as soon as possible to keep the inventory cost down. A low stock is therefore desirable. Mind you, to limit waiting times, good agreements with your suppliers are necessary.
For articles with a high margin, a large stock is recommended. You want to sell these items a lot and should therefore always have sufficient stock. The return on investment of this stock is high.
4. What are the main advantages of inventory software?
Inventory management software is at its strongest when it is part of an overall package, which also includes purchase and sales management. Enterprise Resource Planning or ERP offers numerous advantages.
Inventory
Stock counts done using a barcode reader contain significantly fewer errors than manual counts. An additional advantage of an automated count is that the stock can be scrutinised several times a year. With a periodic count, you get a much more accurate picture of stock movements, allowing the warehouseman to be more concise.
Stock movements
An ERP system plays a crucial role in correctly recording stock movements. It ensures that all incoming and outgoing goods flowing into the stock are covered and handled correctly. Barcodes or RFID systems offer a big advantage here.
Do your customers order via a webshop? Thanks to this system, you can also display online how many items you still have in stock at the time of ordering. Clear customer communication increases overall satisfaction.
Stock optimisation and forecasting
Inventory software looks for patterns in stock movements and suggests optimisations based on them. The software thus makes precise forecasts and anticipates the movement of incoming and outgoing items. As a result, you will never be faced with surprises (or empty shelves). Moreover, stock optimisations have a favourable impact on the cost price of stock.
Reporting
In just one click, you get a detailed report of all articles in stock. Which products are performing well? What is the rotation rate per article or product group? How much is the inventory cost? All these metrics make the supply chain of your trade transparent, so you can make informed decisions to optimise stock.