Product-based business models are popular with both B2B and B2C applications. But managing all of these physical products is a big challenge. Regardless of a company’s size, niche, or product, managing inventory can become unwieldy without the right tools and processes in place. In fact, inventory problems cost businesses $1.1 trillion globally every year.
Changing consumer habits and the switch to eCommerce-first shopping have made it even harder for brands to compete. It’s more important to carefully watch margins today—because any inefficiencies can cost brands millions.
Don’t rely on manual data entry or spreadsheets to track your inventory. Inventory management practices and inventory management software systems will help your team run a more balanced, data-driven operation. Learn how inventory management works and the inventory management techniques and tracking tools that can revamp your operations.
Inventory management is the process that businesses follow to manage all of their inventory. This can include the raw materials you use to make your products (like ingredients for food businesses), the assets your business relies on to conduct business, as well as the finished products themselves. It can also include the replacement parts and other inventory needed for maintenance, repair, and operations (MRO).
It’s critical to manage inventory because, until it’s sold, inventory ties up capital and warehouse storage space. If businesses hold too much inventory in their warehouse, they risk not having the capital necessary to operate.
Fortunately, inventory management gives brands more visibility into their products. It ensures that brands stock:
Proper inventory management tracks products from the moment they leave the manufacturer to when a customer buys them. Inventory management monitors every step in the process, including:
There are so many behind-the-scenes moving parts with managing inventory, especially as an operation scales. Trends change and supply chains evolve, too, so it’s important to use an inventory management tool to keep your customers happy.
The main purpose of inventory management is twofold:
Ultimately, the goal of inventory management is to maximize profits by removing any imbalances in your business.
Aside from helping businesses master this balancing act, inventory management also comes with benefits such as:
While inventory management might sound straightforward, there are actually several different types of inventory management. Every business is different, so the way you approach inventory management and inventory tracking depends greatly on your model and products.
Brands commonly fall into these types of inventory management:
Inventory management makes it possible to run a data-driven company with as little ambiguity as possible. But physical inventory requires a lot of hands-on management to keep costs manageable and reduce errors. While the proper processes are important, companies should adopt one or more of these inventory management techniques to optimize their inventory.
It isn’t possible to stock all of your products at the same level. Some inventory is going to be in higher demand than others. That’s why brands conduct ABC analyses: this looks at your most and least popular stock, making it possible to prioritize which products you reorder first. If you need to manage cash flow, this technique is a great way to route resources to the products that customers are more likely to buy.
61% of brands say forecasting is the biggest benefit of inventory management. With demand forecasting, brands can use artificial intelligence (AI) to predict customer demand for certain products.
For example, if you sell school lunch boxes, you can use AI to determine when parents start shopping for school supplies. From there, it’s as simple as working backward to have the proper items in stock in time for back-to-school shopping.
What’s the right time to reorder from your suppliers? The reorder point formula tells brands the bare minimum level of stock they need before it’s time to reorder. This helps brands avoid ordering too early or too late—both of which come with expensive consequences.
Economic order quantity (EOQ) is a formula for calculating how much inventory you should order from your supplier. The goal is to keep inventory moving as quickly as possible, so you aren’t holding onto unsold inventory. For example, if your EOQ tells you that you will sell 200 units in one week, you can maintain that inventory level every week to keep up with demand. No more, no less.
There are three formulas brands use to determine the order in which they ship out inventory. The right option depends on the nature of your business and products.
Just-in-time (JIT) inventory (also known as “lean manufacturing”) is a practice where you keep the lowest stock levels possible before you reorder. It’s very tricky to do, but with inventory management software, JIT significantly reduces the need to store inventory. JIT is most common for eCommerce brands that offer customization, where they only produce items when a customer places an order.
Periodic automatic replenishment (PAR) levels are the minimum amount of inventory brands keep around at all times, no matter what. If you hit your PAR level, it means it’s time to reorder. Brands usually determine their PAR level by looking at their sales volume, as well as how long it takes for products to arrive on shelves.
Days inventory outstanding (DIO) is a formula that calculates the number of days it takes to sell one unit. In other words, it calculates how long you hold onto an item before it sells.
Ideal DIO levels depend on your industry. Big-ticket items like furniture might have a higher DIO rate on average because they take longer to sell, while cheap consumer goods, like soda, might have a lower average DIO. For this inventory management technique, you’ll need to know the average DIO levels for your industry and competitors to understand if you’re selling products quickly enough.
Every brand needs some kind of buffer to address uncertainty. Safety stock is stock that brands keep around to meet unexpected spikes in demand, supplier delays, or any of the other uncertainties that come with running a product-based business. If you sell out of your current stock, you can rely on safety stock to fulfill orders while waiting for replenishment.
There are a variety of types of barcode labels and asset tags that can be used for inventory management applications such as warehouse inventory management. Here’s a look at a few of the most commonly used types of inventory tags.
Inventory control tags & labels include a variety of barcode labels and asset tags designed to meet the needs of different applications. Foil Metalphoto® labels, for example, are designed to last more than 20 years, even in harsh outdoor environments, while premium polyester labels are well-suited for use in indoor applications. Industrial metal barcode labels, stickers, and tags are made of Metalphoto photosensitive anodized aluminum or other durable metals such as alloy stainless steel and brass and are designed to withstand the harsh operating conditions in industrial applications.
50% of brands rely on tags to track their inventory in the warehouse. Radio frequency identification (RFID) tags wirelessly send data without scanning. However, they can pose some security risks as they’re vulnerable to hacking, and they’re also cost-prohibitive to scale compared to barcode labels.
Durable UID tags are designed to meet the requirements of MIL-STD-130 for the defense industry, enabling defense operations to maintain accurate and comprehensive inventory control. Camcode’s durable UID tags can withstand harsh outdoor conditions to remain readable for the lifespan of your assets.
Regardless of which types of tags you use, they’re an essential inventory management tool to automate your inventory with real-time insights.
There are so many moving parts to inventory management that it requires sophisticated technology to keep everything moving. In fact, there’s been a 25% increase in the number of brands using inventory management technology.
With demand for inventory tracking solutions jumping by 2X, it’s clear that product-based businesses need to consolidate inventory management into one platform.
Brands have so many options available, but the right inventory management software depends on your needs, setup, size, and budget. To jumpstart your search, consider these inventory management platforms to streamline your operations:
Want more options? Check out our ultimate guide to inventory tracking software, our roundup of the best inventory management software, and our list of top inventory management apps to find the best fit for your business.
There’s no need to rely on manual inventory counts or spreadsheets. Today’s product-based businesses are operating with more uncertainty and competition than ever before—that’s why proper inventory management is so critical.
Inventory management is essential for success: ensure that you’re following inventory management best practices to keep operations moving smoothly. Asset tagging solutions from Camcode power brands with durable inventory tags that make inventory management a breeze.