A robust inventory management system is a strategic asset that can deliver significant return on investment. Integrating and leveraging the right tools and technology provides teams with real-time insights, empowering them to minimize stockouts and optimize production, enhance customer satisfaction with seamless on-time deliveries, and improve operational agility to navigate market shifts and unexpected disruptions – all of which helps boost competitiveness and profitability.

Multiple challenges can hinder optimal inventory management, from error-prone manual tracking to the data fog obscuring real-time visibility. Expanding product portfolios can strain resources and require nimble adaptation, and demand forecasting requires a delicate balance, as overstocking risks obsolescence and stockouts threaten sales. Not to mention, flawed sales forecasts and lack of experience in production planning can make inventory management a complex, time-consuming exercise.

And yet, creating an effective inventory management system can shift the business closer to the customer for increased revenue and margins, reduced operational demands, and lower delivery costs. Examples include:

• Proactively managing inventory master data to improve replenishment cycles, reduce stock-outs, and effectively use valuable warehouse space
• Instituting slotting strategies to reduce pick time (which increases on-time delivery), foster a better organized warehouse and visual management, support stock rotation, and comply with standard storage methods (e.g., FIFO, LIFO)
• Implementing barcode scanners and labeling technology to enable mobility and real-time data, quicker decision-making, and validation that personnel are picking the right items, at the right time, for the right customer
• How can operations leaders best transform their inventory management system to create greater value for their organizations? Start with these four steps to guide your focus and decisions.

1. Assess your maturity level

The first step to a robust inventory management system is a thorough understanding of your current landscape. This can be achieved through a maturity assessment that helps you define goals, gather data on existing processes and practices, and pinpoint your current and desired maturity level. The assessment equips you with a roadmap for improvement, outlining specific actions like training, process redesign, and best practice implementation. Most organizations fall into one of the following maturity levels:

• Chaotic Inventory Environment: Organizations with a chaotic environment may be just starting out or have grown rapidly and don’t have scalable or robust processes in place to accommodate such growth. They may find themselves spending a lot of time searching or sifting through product, dealing with stock-outs and shortages, or providing low-quality or incorrect items to customers. Operations may be scrambling to meet deliveries, and because the team is constantly in fire-fighting mode, they can only focus on day-to-day business, not strategic or optimization efforts.
  • Next up: Companies at this stage should focus on establishing standardized, baseline processes to set the foundation for scalable growth and continuous improvement.
• Stable Inventory Environment: Organizations with a stable environment usually have a solid inventory foundation and solid business practices. They may use a numbering convention. Most are not scrambling to deal with crisis situations. But still, they acknowledge there is room to grow.
  • Next up: These companies should focus on scaling processes, leveraging technology to optimize operations, and eliminating lingering inefficiencies.
• Mature Inventory Environment: Organizations with a more mature environment have aligned with best business practices and have processes that are defined, scalable, and regularly monitored.
  • Next up: Organizations at this level are usually ready to embrace next-level technology like advanced shipment notices for seamless supplier and customer integration; secure supplier and customer portals for information exchange; and picking route optimization for efficient, error-free operations.

2. Track and manage inventory

Once your desired maturity level is established, you can assess your inventory management strategy to better gain insights and identify trends from your data, avoid breakdowns in the supply chain, and maintain overall profitability. Readiness in this step means mastering item data management: enforcing consistent naming, descriptions, and attributes for accurate reporting, searching, and streamlining inventory rationalization.

This stage is also where companies tackle SKU rationalization. Identify the key SKU attributes that significantly impact inventory flow and manage them meticulously to prevent uncontrolled inflation.

Finally, for the more mature strategies, this is the time to bridge the gap between your barcode data and efficient operations by embracing mobile technology for real-time transactions and minimizing labeling errors.

3. Life cycle management

Embracing your inventory’s life cycle is the key to driving better outcomes. From the moment a new SKU enters the scene to the final payment received, every step needs to be meticulously managed to fully realize inventory management maturity.

• Begin by mapping out the entire process, documenting best practices to share with new employees during onboarding and identifying continuous improvement opportunities. Think of it as building a clear road map for your inventory journey, with each step – receiving, put away, picking, packing, staging, and shipping – mapped efficiently.
• Optimize your warehouse layout and slotting to enable smooth flow and maximize space utilization. Implement robust quality inspections at both ends of the supply chain to get the right product to the right customer at the right time.
• Maintain accurate inventory levels through regular physical and cycle counts, so that your business operations are always grounded in reality.
• Finally, don’t let slow-moving or outdated inventory become a drag on your efficiency. Regularly review and dispose of obsolescence, reclaiming valuable resources and keeping your warehouse lean and mean.

4. Generate reports and develop a KPI dashboard

Transforming data into actionable insights is the final step in mastering your inventory. That’s where your inventory management dashboard comes in – your command center for operational efficiency. But its effectiveness hinges on one crucial factor: the right key performance indicators (KPIs).

These metrics, varying by industry, serve as your compass, guiding you toward cost control and customer satisfaction. For fulfillment, consider tracking order fill rate, fulfillment process rate, picks per hour, and – the holy grail – on-time and in-full (OTIF) deliveries. Inventory accuracy, inventory turns, and obsolescence levels paint a clear picture of your stock health. Finally, keep an eye on supplier KPIs to confirm smooth collaboration and efficient logistics.

If you diligently monitor these metrics and adjust your strategies accordingly, your dashboard becomes more than just a data display; it becomes your road map to a thriving, efficient warehouse. The right data, used wisely, is the key to unlocking the full potential of your inventory.

What are the biggest inventory management threats to unlocking profits?

The red flags of inventory mismanagement can be hard to miss. Running out of space can mean inaccurate forecasts and neglected obsolescence reviews, while a cash flow squeeze hints at overstocked shelves that result in excess inventory. Long pick times usually point to disorganized storage, inaccurate data, or missing barcodes/labels. An inability to fulfill orders on time can be a result of not having the right stock at the right time to support normal business, while consistent inventory shortages suggest a lack of supply chain management, poor internal planning, or inefficient processes.

In conclusion

It’s important to remember that mastering inventory management is a journey, not a destination. It’s a balance of agility and strategy, data and intuition, and optimization and adaptation. With the right road map, you can transform your inventory from a cost center into a revenue driver, powering efficiency, customer satisfaction, and continuous improvement that can create value from your inventory and keep your business thriving.

CohnReznick is here to help you along your journey to inventory management transformation. Reach out to get started.