Saying that inventory management helps businesses achieve success is like calling the sun’s surface warm. It’s technically true, but it’s an understatement.
In reality, the sun is scorching hot, and managing inventory does more than help your business thrive. To understand why this practice is so important, let’s explore the top objectives of inventory management.
An overview of inventory management
Inventory management helps companies decide how much inventory to hold, when to reorder, and how to organize a warehouse efficiently.
It sounds straightforward enough. But several factors play into how well your business can manage its inventory:
- Supplier lead time is the time it takes to receive inventory.
- Demand is the amount of inventory customers want to buy in a given period.
- Safety stock is the extra inventory kept on hand to avoid stockouts.
- Carrying costs are the inventory costs associated with storing and maintaining stock, including rent, utilities, and insurance.
Effective inventory management is a delicate balance between all of these factors and more. You also have to decide whether to use a distribution center or warehouse (or both), how many staff are needed on the floor, and the volume of orders you can handle, all while balancing customer needs with profitability.
Luckily, knowing what a strong inventory management system can do is the first step to creating one that works — and we’re here to teach you.
The 13 key objectives of an inventory management system
Here are the objectives for setting up an inventory management system.
1. Achieve a good inventory balance
Knowing exactly how much inventory you need avoids both understocking (which leads to missed sales) and overstocking (which ties up capital and increases holding costs). A well-balanced inventory keeps enough products to meet demand without overspending on storage and potential waste.
2. Improve inventory turnover
A high inventory turnover ratio means products are selling quickly, which is good for cash flow and reduces the risk of obsolescence. And analyzing inventory turnover helps you implement ABC analysis, a method for categorizing items based on their value and importance. With ABC analysis, you prioritize high-value stock (“A” items) and manage them more closely, ensuring there’s enough on hand while dedicating less attention to lower-value (“C”) items.
3. Organize your warehouse
Identifying top sellers helps you organize the warehouse for faster picking, packing, and shipping. Workers don’t need to spend extra time trying to find stock with a high turnover. And if you know which products customers often combine, storing them close together or kitting them offers the same benefit.
Take warehouse optimization one step further by using barcode scanners to quickly identify, categorize, and track inventory across storage areas. Plus, the right inventory software makes the reordering process easy. To place orders, just scan the product barcodes and enter a few details.
4. Gain repeat customers
Effective inventory management leads to what every business owner aims for: repeat buyers. If you have the items customers look for every time they shop, they’ll see the business as reliable and be more likely to return.
5. Plan accurately
Effective inventory control helps you gather the information you need to anticipate seasonal fluctuations, plan promotions, and adapt to changing market conditions — also known as demand forecasting. This ensures you always have the right products in stock at the right time.
6. Boost employee efficiency
Clunky, outdated systems waste employees’ time. With more efficient tools and methodologies, you empower employees to manage stock levels with ease. Training employees to use supply chain tracking systems, inventory management software, and other tools helps them better use their time.
7. Track inventory efficiently
Solid inventory management is even more important when you have multiple warehouses or distribution centers because you have to cross-coordinate supplies. Factors like differences in demand and turnover might mean each location has different inventory needs. With efficient tracking, you can easily transfer goods between locations to correct imbalances.
8. Save time
By keeping track of all the products on hand and on order, you avoid the hassle of doing constant recounts to make sure records are accurate. While it’s important to audit inventory periodically, having the systems in place to accurately track stock saves you from doing it as often.
9. Improve order accuracy
No one likes opening a package to find they’ve received the wrong product or an incomplete order. A robust inventory management system, especially one that integrates with your sales channels, makes errors few and far between. This means fewer returns, happier customers, and a smoother operation overall.
10. Enable multi-channel sales
These days, most businesses don’t operate a single storefront. Effective inventory management means you can sell across a website, brick-and-mortar locations, and any other channel. The key is having a system that seamlessly updates inventory levels across all platforms in real time. You accurately assess demand, no matter where orders originate.
11. Reduce shrinkage and theft
Inventory management systems provide tools to combat loss due to theft or human error, like regular cycle counting, security features, and detailed tracking for high-value goods. By minimizing shrinkage, you protect the bottom line and ensure the inventory on hand matches what the records show.
12. Ensure regulatory compliance
Depending on the industry and location, you may need to adhere to specific regulations for inventory management and reporting. A good system not only gathers the necessary data but also generates reports that meet compliance standards. You save time, reduce the risk of penalties, and have peace of mind knowing you’re operating within legal boundaries.
13. Streamline procurement
Inventory management is about what’s coming in just as much as what’s already on hand. Automated procurement tools analyze sales data, predict demand, and even generate purchase orders with optimal quantities. These tools minimize lead times, give you more leeway to negotiate future deals with suppliers, and help you avoid expensive rush orders. With a streamlined procurement process, you get the right goods when you need them, all while saving money.
Unlock efficiency, accuracy, and growth with Fishbowl
Ready to see the outcomes of these inventory management objectives firsthand? Schedule a demo of Fishbowl, the all-in-one inventory management solution designed to help you control stock, warehouse operations, and manufacturing workflows. The platform also integrates with QuickBooks to promote financial visibility and improve your business’s overall health.