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Red Stag Fulfillment calls inventory management important to every company’s operations because it can make or break your bottom line. Getting inventory right helps you scale and grow. Mismanagement can lead to significant shrinkage, loss, and financial hardships. In this article, we’ll look at inventory management to help you understand this value and why implementing best practices is right for any eCommerce seller.

We’ll cover:

Inventory management important to accurate demand forecasts

What is inventory management?

Inventory management is an umbrella term covering all the practices and processes that impact your inventory. This starts with initial orders from your suppliers — or raw materials if you manufacture goods. It also covers how your team receives and stores that inventory, how people use it to fill customer orders, and processes for restocking and keeping stored goods safe from damage.

For both eCommerce and traditional retail — plus you hybrid shops — inventory management covers the core practices that keep the lights on, and the doors open for business. The better you can control and manage inventory, the better positioned you are to succeed by having the products shoppers are trying to buy and delivering those goods in time to minimize returns.

Why is inventory management important in general?

inventory management important tools include scanners like this

We call inventory management important because it takes a significant amount of information and effort to get right. You’ll need to know current stock levels and sales volume first. Many companies and eCommerce platforms can now forecast future sales, which should inform how much stock you want on-hand going forward.

The data tells you how much physical space you’ll need to store products, boxes, tape, infill, and other pieces of your orders. It’ll even highlight how big of a team you need, the space required for your people, and how much equipment to get so everyone can complete their work. The data you pull to manage your inventory is so valuable that it can and should inform HR and hiring, technology, operations, product sourcing, carrier selection, and other decisions.

Put simply, every eCommerce company should view inventory management important enough to prioritize from day 1. And, depending on your size or if you’re planning to take your company public, there are regulatory requirements for inventory tracking as part of broader financial data management.

Here are 5 ways to get the most out of your inventory management

7 benefits of inventory management

You’ve probably heard a lot of things called “important” today and wondered if that was true for any of them. We want to make a case for inventory management always being labeled as important. So, let’s look at a few benefits that happen when you invest time and money into inventory management.

1. Reduces expenses

eCommerce store reducing expenses

Companies with robust inventory management efforts can often cut inventory costs. They achieve this by knowing what they have and how it matches order volume and usage. It limits risks related to stockouts and over-ordering. Plus, if you’re using multiple warehouses, you can stock based on orders but have other safety stock just in case. That means protection while filling orders from the warehouse closest to the buyer, reducing shipping costs by reducing shipping zones.

2. Reduces loss risks

warehouse security camera

Inventory loss and shrinkage happen in a variety of ways. Some are directly tackled when you view inventory management as important for your operations. Often, your tracking system helps ensure that you’re using the oldest items first and avoiding spoilage. You can also track goods and slowly reduce inventory levels of SKUs that don’t sell well or have high seasonality. That shaves down storage costs and related product-handling costs.

Red Stag Fulfillment also uses inventory management tools to ensure we can guarantee zero shrinkage for your products. Our security plus inventory monitoring tools will keep your inventory counts accurate, helping you best industry averages and avoid losses.

3. Reduces maintenance costs

Inventory management typically prioritizes SKUs and sellable inventory. However, it’ll also help you track related technology and tools. This is critical for your carts, forklifts, packing stations, and similar equipment used in pick and pack operations. Accurate inventory counts and order details can help you know when to pull equipment out of use for scheduled maintenance. You can also use inventory management tools to track internal parts and repair requirements.

This means there are important inventory management areas related to your operations beyond sales. Thankfully, more tools can integrate now. You’ll often find automated notes about when equipment may need service or when it’s time for recurring maintenance. That’s a compelling backup plan for your regularly scheduled checks and inspections.

4. Increases order accuracy

scanning for inventory and order accuracy

There are also important aspects of inventory management for your order management. Inventory management systems track your goods and tell pickers where they are within a warehouse. Accurate data means less walking and searching, and less time spent looking for items. An older Emerson study found that people can spend up to 25% of their time trying to find equipment, parts, and products for their tasks in warehouse and maintenance settings.

Instead of wasting that time, inventory management tools can help your people move quickly to get the right products for every order. These platforms also involve multiple scans and checks to verify that an order is correct and accurate during the pick and pack actions. Increasing order accuracy reduces your losses and shipping costs, while encouraging customer loyalty.

Order accuracy is so mission-critical, we guarantee it and make anyone whole when we miss an order. It’s a chief reason we treat inventory management important for every partner and process.

5. Improving cash flow

Here’s something management always loves: Using your inventory better frees up cash without reducing sales. Inventory management makes it easier for analysis and forecasts to get it right, while you’re facing reduced loss or investment in slow-moving inventory. If you need to convince leadership to increase your budget for inventory management tools, start with realizing that your company would be better using resources, slimming down inventory CapEx, and reducing overall operational risk.

6. Improves safety

inventory manage important tip: look around you when moving stock with a forklift

Here’s an interesting reason you should consider inventory management important. It’ll keep your teams safer. Remember that inventory management looks beyond sellable SKUs. Many companies have used their systems to track PPE and sanitization efforts during the pandemic. You can also track fire extinguishers, maintenance, and predicted order volumes for any day.

That way, you’ve got the right number of people for a shift. Plus, they have properly serviced equipment that is at less risk of a catastrophic failure. It’s an intelligent way to protect your most valuable asset.

7. Makes compliance easier

Building on the safety aspect is the role of inventory management in compliance. The most common compliance element an eCommerce business will face is meeting different OSHA requirements. These can include having and maintaining safety equipment, performing checklists for heavy equipment, and meeting specific job requirements. Inventory management tools help ensure you’ve got enough face coverings, earplugs, hard hats, and other required gear.

If you’re a large organization or publicly traded, inventory management plays a role in your financial reporting requirements. Such systems can capture your inventory stock levels, orders, spoilage and shrinkage, and other metrics needed for audits. (Even if you’re not at this stage where it’s a legal requirement, they’re all good elements to have for your own financial planning and growth operations.)

Not sure how to get started? Check out these 7 examples of inventory management software to jumpstart any brainstorming and decision-making process.

There are inventory management challenges

That isn’t to say that inventory management is all sunshine and roses. There are some significant challenges that you’ll face when it comes to trying to manage and sell these goods. The mix you’ll face will depend on your software and capabilities, team size, and customers.

Here’s a few things to consider:

  • Accurate inventory counts can take a lot of time to start. Manual checks are incredibly involved, and you’ll need to continue them (though less frequently) even if you automate the process to ensure that your software is accurate.
  • Consumer habits can shift quickly, impacting forecasting. If the pandemic taught us anything, it’s that the world can change in an instant. So, inventory management efforts are a buffer but not a perfect shield against challenges from the outside world.
  • Space is at a premium. Shelves and warehouse space, dock doors, packing stations, and more always tend to run out of room as you scale. Getting better inventory management can often lead to a space crunch down the road because you’re better able to grow in ways that meet customer needs. This means you’ll want to be reinvesting the savings you face.

At Red Stag Fulfillment, we’re collaborating with partners to understand the ongoing supply chain disruptions made worse by the coronavirus pandemic. Part of that will include creating posts and sharing information on new developments and major concerns. Recently we looked at the difficulty in balancing too much or not enough inventory due to ongoing delays. You can read that post here, and Red Stag partners can reach out to their representatives with more direct questions or concerns. When it comes to the global supply chain, we get through this together.

Inventory management important terms

When you start looking at inventory management practices, you’ll begin to see many new terms. Here’s our quick look at some inventory management important words and terms that you’ll want to know. They’re essential for anyone picking software or creating an inventory management plan.

Bulk shipments

Bulk and freight shipments are the inbound shipments from manufacturers and wholesalers to your warehouses or 3PL. You’re buying in bulk to save on costs per unit and because this usually helps you reach freight rates with carriers, reducing your inbound shipping cost.

Cross-docking

Cross-docking is an advanced method for optimizing inventory use. In this instance, you’ll receive goods and unpack them, then immediately use that inventory to fill existing orders. It’s one way to quickly address backorders, and more advanced inventory tools can make this easy.

Cycle count

Cycle counting is an inventory counting method. Here, you recount inventory more often as it sells more. This is a small check to verify that inventory in your software matches inventory in your warehouse. It is common for best-selling items as well as high-value goods. Companies use it in conjunction with full inventory counts.

Demand forecasts

Demand forecasts project sales for the next few months or years based on current information and historical trends. There are multiple models you can try to see what works best for you and your products. Here’s a quick primer on six types of demand forecasting.

Economic order quantity

Economic order quantity, or EOQ, is a formula that helps you figure out the right amount of stock to fill your orders during the year ahead. Getting this right can help you reduce how much capital is tied up in inventory while still helping you fill orders. Check out this detailed guide on EOQ.

FIFO

FIFO — or first-in, first-out — is an inventory utilization technique. In FIFO, you use the oldest product to fill the next order. This helps you minimize spoilage by moving goods before they go bad or reach an expiration date.

Inventory count

An inventory count is simply a physical check and count of all the items in your warehouse. This is to help you understand what you have in stock, verify that software has the right amount, and determine what stock is moving.

Just-in-case

Just-in-case (JIC) inventory management is the habit of buying up extra stock just in case you need it. This has become significantly more common due to the supply chain issues caused by the pandemic. We’ll be looking into this much closer in 2022 as we discuss more options to help your business.

Just-in-time

Just-in-time inventory is an inventory practice where you keep as little stock on hand as possible. Here, you’re trying to sell what you have in stock and placing reorders so that your shelves nearly run dry before the resupply arrives. Then, you can immediately start using the resupply for new orders. It works well until there’s a significant supply chain disruption. When that happens, you typically face significant shortages.

Reorder point

A reorder point is a stock level that tells you it’s time to reorder some goods. Your inventory tools should help you determine this point so that you’ve placed a reorder before forecasted orders cause you to deplete stock entirely.

Safety stock

Safety stock is the inventory you buy to cover an unexpected event, whether that’s a big sale or a disruption to your supply chain. It typically increases your costs and reduces the chance of experiencing a stockout. JIC inventory management increases safety stock levels significantly.

Slow-moving inventory

Slow-moving inventory covers any products you have that have a long sales cycle. Generally, this would include SKUs that only sell a few units every three to six months. In eCommerce, some companies use shorter time windows. These goods tend to come with a significant investment. Unfortunately, when they fail to sell they can cause significant expenses with storage costs that often rise when goods have sat on shelves for more than six months or a year.

identifying sales and service opportunities

Is inventory management important to other areas?

Inventory management feels very internal. You’re doing a lot of difficult, different work that customers will never see. When you get everything right, your customers likely won’t even think about all the inventory control processes you’ve got in place. But, they will feel it.

Inventory management plays a significant role in customer satisfaction. A well-run warehouse or distribution center with optimized inventory can get orders out accurately and on time the first time. This means fewer returns and less risk for damage in transit because of proper packing. Customers get what they want in good condition so they can enjoy your product.

Inventory management practices also help you keep popular items in stock. Tracking inventory levels and ensuring counts are accurate will improve overall product availability. You’re highlighting what’s in stock, and you know when to reorder to keep supplies high. Proper inventory management also helps ensure that your restock orders are just as accurate as your outbound shipments to customers.

When people ask is inventory management important to their business, we say that it’s an essential part of operational health. The better you control and manage inventory, the better experience you can create for staff and customers. That builds loyalty and engagement with the two most important groups of people for any company.

inventory manage important work should always end with an enthusiastic high-five

Inventory management important partnerships

We can’t overstate the inventory management important requirements and practices for your business. It simply must be done right or you’re at risk. That’s why Red Stag Fulfillment collaborates with every partner to help them optimize inventory. Having the right data so you keep the best stock levels ensures that you can keep selling.

Red Stag has been spending time with our partners to understand their goods and supply chain. During COVID-19, that’s meant more conversations and discussions to look for larger supply chain trends. Our team is working to help partners react and protect operations, optimize inventory levels, and avoid both stockouts and having way too much inventory on hand.

If you’re not sure how to optimize your inventory or are worried now that you realize the depth of inventory management important practices, we can help. Click the button below to reach out and ask a Red Stag expert.

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