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Use inventory management to improve profitability

Nov 08, 2016

You need good inventory management in your warehouse to be profitable.

If you purchase too much product, it takes up expensive real estate space. Depending on where you operate, you may have to pay personal property taxes for items that sit on the shelves. And if a product reaches the end of its lifecycle while it’s in your warehouse, you could be stuck covering the cost.

Underbuying is risky, too. If you run out of stock, you may have to expedite future orders to meet demand. That means your margins will take a hit.

So, how do you get it right? Good inventory management boils down to accountability. You need to account for what's coming into and out of inventory. There are low-tech and high-tech solutions to help you get tighter control over inventory.

Low-tech solutions to inventory management

Without any technology investment, manufacturers can:

  • Review procedures. Make sure products are stored properly, first and foremost. To avoid spoilage, make sure the temperature and environment are appropriate, and that all your employees are trained to handle inventory correctly.
  • Ask questions. Your frontline workers know what’s working and what’s not. Talk to the people who handle your inventory on a regular basis. Ask them how to improve efficiency and effectiveness.
  • Minimize waste. Train workers to use and assemble products so they don’t mishandle or break parts. Is there a way to fix, reuse or discount damaged parts so nothing goes to waste?
  • Account for R&D. Your research and development (R&D) team needs products to do their work. Did you account for that during purchasing — or does R&D pull inventory from common stock and other sources?

Modern tools for inventory management

IoT devices and other tools can help make inventory more visible and transparent across the company. Without them, the warehouse manager “just kind of knows” where things stand. And if that person is absent, it could result in stock-outs, lost revenue and a lot of frustration. Not to mention, manual methods are prone to human error.

Enterprise resource planning (ERP) systems benefit inventory and supply chain management with the following features and capabilities:

  • Real-time inventory updates. Some ERPs use barcode and SKU systems to track items on mobile devices as soon as they’re picked. That means you get up-to-the-minute inventory reports, which lead to accurate financial reports and demand planning. An ERP can also alert you when it’s time to do a physical inventory count for a part number or bin, or when stock is getting low
  • Cross-departmental visibility. With an ERP, more departments have visibility into inventory levels. That means sales can see stock in-hand from the field — and can promise accurate fulfillment dates (and improve customer relationships).
  • Accurate and timely reordering. Procurement can be automatically alerted when it’s time to purchase more inventory, based on whatever thresholds you set. This takes the guesswork out of ordering and minimizes out-of-stock events.
  • Discrepancy alerts. An ERP alerts you instantly if physical inventory counts are off — or even sooner, if you notice an item count running down sooner than expected. Because purchase orders and other transaction data are stored in the system, it’s easier to dig into “why.”

People impact profitability, too

Technology can automate processes and create efficiencies — if two things happen:

  • People collect and clean up your inventory data
  • People commit to new inventory practices, including data maintenance

Your staff need to organize part numbers, bin numbers and other key data associated with inventory and locations before it can be operationalized in an ERP or inventory management system. Your people know your processes and your products. You need their institutional knowledge and expertise to create a system that’s effective and simple to use.

You also need to change management support. If workers fail to adopt new inventory management practices — or don’t do their part to maintain inventory data — the system won’t reach its full potential. Inventory management can drive the organization toward profitability — but everyone needs to get on board.

How Wipfli can Help

Inventory management is a key driver of profitability. So, let’s make it count. Wipfli can help your warehouse leaders create consistent and efficient inventory processes and learn to use cutting-edge tools. Learn more.

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Wipfli Editorial Team