KPIs help businesses measure qualitative and quantitative aspects of managing an inventory. This is why B2B inventory management systems solutions are the foundation of any product-driven business. In theory, it looks simple that by knowing the inventory levels, wholesale businesses can optimize them. However, in reality, it is not that easy. When no robust inventory management is available, it can impact the core business tasks through oversupply or supply shortages.
In this article, we will understand the concept of inventory management and discuss some key tips to improve inventory management.
Inventory Management- An Overview
Inventory management governs the entire process, from purchasing raw materials to selling finished goods. It helps businesses know whether they have the right quantity of the right item. Moreover, it aids in tracking and controlling the inventory as it is manufactured, stored, and bought.
The main objective of inventory management is to help businesses easily and efficiently manage orders, stock, etc.
Importance of KPIs
Key Performance Indicators (KPIs) are essential metrics businesses use to assess performance and make informed decisions. When it comes to businesses dealing with inventory management, there are several crucial KPIs to track. These KPIs help measure inventory-related operations' efficiency, profitability, and overall effectiveness.
Inventory Turnover Rate: This KPI measures how often inventory is sold and replaced within a specific period. It is calculated by dividing the Cost of Goods Sold (COGS) by the average inventory value. A high turnover rate generally indicates efficient inventory management.
Days Inventory Outstanding (DIO): DIO measures the average number of days for inventory to be sold or used up. It is calculated by dividing the average inventory value by the COGS per day. A lower DIO indicates more efficient inventory management.
Stockout Rate: This KPI measures the percentage of time that products are out of stock and unavailable for purchase. Keeping this metric low is essential to avoid missed sales opportunities and customer dissatisfaction.
How Does Inventory Management System Work?
Depending on the size and nature of the business, the inventory process can go as deep as required. It may comprise sales forecasting, modifying the functions as per the caging demands, and much more. Furthermore, five main stages of the inventory management process. In the first stage, businesses buy raw materials for manufacturing goods or purchase finished goods directly for reselling as per the specified business model. The next stage is production, in which finished goods are prepared from raw constituents. However, it is relevant for manufacturing businesses only, and wholesalers can skip this stage completely. After this, the warehousing stage comes in, where the raw materials are stored before they are used in manufacturing. Finally, the sales stage involves selling the goods to customers in exchange for payment.
Effective Inventory Management Tips
Here are some practical inventory management tips which are as follows:-
Categorize Your Inventory
It can be daunting for businesses to get the required product from a warehouse full of goods. It also completes the calculation of inventory levels of different products. Therefore, sorting out the inventory and labeling is one of the key tips to streamline the inventory management process. Moreover, it is better to label and use shelves for different products.
Rule of FIFO
FIFO (First in, first out) is one of the practical approaches for inventory management and is especially significant for small businesses. Following this approach, businesses are required to sell products in order of their arrival in the warehouse. The principle of FIFO works in a manner of first, where the oldest inventory items acquired or produced earliest are considered the first to enter the inventory. First out works when sales or consumption occurs. As a result, the chances of spoilage and obsolescence get reduced.
Build Strong Relationships with Suppliers
Having a robust relationship with suppliers helps businesses smooth over issues. To build strong relationships with suppliers, businesses must provide adequate information about their sales and processes so that suppliers can adjust production and optimize accordingly. A robust and long-term relationship with suppliers can help businesses streamline supply chain management and order management system eCommerce.
Accurate Forecasting
Accurate forecasting is essential as it will help you prevent understocking and overstocking problems. Market trend analysis, historical sales figures, predicted growth rates, etc., can be good forecasting sources. As a result, businesses can make informed decisions related to the inventory management process.
Cloud-Based Inventory Management Software
As the business grows, robust B2B inventory management systems solutions are required to manage inventory effectively and efficiently. Moreover, cloud-based inventory management software provides benefits, like a centralized database repository.
Final Thoughts
In a nutshell, it can be well-estimated that B2B inventory management systems solutions are crucial to ensure robust KPIs. Thus, businesses must opt for effective management techniques, tools, and software.
