Smart inventory management builds a better business
Product availability impacts much more than the warehouse and the smarter inventory management you run, the more efficient your entire operation becomes.
And you know that — especially in the e-commerce space — greater efficiency translates into more opportunities for revenue and staying in the black.
Using smart inventory management (SIM) tools for an e-commerce operation delivers a wide range of benefits around inventory cost reductions and workflow improvements. However, many businesses are turning to inventory controls to help them build better product offerings, narrow their marketing focus, and even give a little support to their accounting teams.
It turns out that knowing your inventory and using it wisely is just good business all around.
Starting with Data
Smart inventory management needs your data, so this is at its core an information conversation.
SIM teaches you about your business, primarily what you have and need but also what people are telling you they want. At the basic level, you’re counting inventory and reordering before you run out to prevent running out of stock. Eventually, you can bring all your data together to understand which products have the most impactful lifetime costs — sometimes showing that a mid-sized seller only has good margins at certain times of the year or giving you a definitive time frame to sell your most expensive item before it moves into the negative-returns territory.
The good news for most businesses is that more and more pieces of software can integrate and share their data. SIMs, which can come in the form of a warehouse management system or tools like ERPs, can be either your best intelligence gathering tool that delivers data to another platform or your dashboard tool that collects information to give you the best picture of your business.
Your mission is to find a system that supports the collection of data 24/7 and its real-time use for decisions. Achieving this makes it easier for the SIM to benefit larger company operations including culture, leadership and change management, and your communications and marketing.
Tackling Problematic Purchasing Decisions
Managing your inventory with real-time data makes it easier to control your costs and protect your bottom line. The most significant shift for many is the reduction of purchases that aren’t necessary, preventing you from overstocking relative to your orders.
Businesses save money by only making the purchases they need on multiple levels:
- Keeping more cash on hand
- Limiting the storage space that you need
- Reducing workforce costs around putting away all those unnecessary goods
- Reducing shipping expenses
For some CPG and manufacturers, you’re also able to limit spoilage of products and raw materials. Knowing the right mix of goods helps you re-order smarter, limiting costs and giving your marketing and product teams information about what’s popular, what is getting returned, and more.
Once you get a handle on this data, you can see secondary warehouse and customer benefits from smart inventory management.
Your most significant cost-saver will be a greater understanding of the intersection between your most popular orders, what goods people buy in combination, and how often you need to restock these goods. The more overlap an item or items have with these categories, generally, the closer it should be to your pickers and your packing stations — limiting how far people have to walk to prepare your average order.
Walking to products can take more than 50 percent of total picking time, so shaving even just a minute off of each pick can turn into significant savings over the course of a year.
Smarter picking can translate into better customer service, which is how this element moves beyond the warehouse. Fulfilling orders faster makes it more likely that they’re sent out on time and arrive when your customer expects them. Reductions in walking and backtracking can also limit injury to staff and damage to products, again keeping customers happier with pristine goods and ensuring timely delivery.
Getting the Books in Order
Tracking costs around inventory and storage will make it easier for your team to understand the overall health of your business, including some expenses that can seem hidden like the lifetime storage costs of goods.
It is easy to look at warehouse costs on a monthly basis when you’re paying the bills, but greater data can show you how long a product sits on your shelves and accurately cost its total cost across the days, weeks, or months, it takes to receive an order and move that product to a customer.
Lifetime costs are imperative to understanding the inflection point of when the margins on a product stop making sense.
SIM tools can provide a 360-degree view on each item, tracking from your purchase or raw materials for production and its shipping costs to get to your warehouse through any final assembly, storage, packaging, shipping to customers, and returns or replacements. Armed with this data, your finance teams can give you a snapshot of the health of your store and individual products, as well as help marketing teams determine what to promote (even at fire-sale prices) to move to save your business money.
They can also show you when managing your own warehouse or finding an order fulfillment partner makes more sense and protects your reputation best.
Data gathering also gives companies an honest assessment of the cost of dead stock — items that never get sold and just eat into your profits. Reducing these through sales or even destruction is a difficult move, but sometimes the most fiscally sound.
Looking for Different Sales
On the other end of the sales thought process, inventory management tools can also show your team what to push more significantly or how to create new sales opportunities.
Inventory-level data makes it easier to track patterns in your sales, giving you more latitude to try cross-selling to see when customers are willing to buy more products or how much more money that they’re ready to spend on an average order.
In the e-commerce space, product combinations are a lucrative way to get rid of inventory or to limit the time smaller items sit on your shelves. Developing these into new SKUs, called kitting, helps your team leverage products for the best return across immediate sales as well as long-term cost reductions.
For instance, say you’ve got a product that requires refills. Generally, you’ll be able to keep fewer refill cartridges on hand if you’re selling those individually as well as in kits. SIM will help you reorder at the right time to avoid an out-of-stock, so you’re maximizing inventory while the product combination can encourage people to buy from you.
Giving away the first refill or two with the main product (especially if you do it at no added cost) creates a positive customer experience and can generate demand for your goods over the long haul. Marketing can focus on these kits and help establish recurring revenue, which safeguards businesses of all kinds.
If you’re wondering about the viability of that model, take a lesson from the software you used to purchase but likely now subscribe to either monthly or annually.
Gartner predicts that 80 percent of established software vendors and all new software providers in 2020 will use subscription-based business models.
It can be convenient for customers and lucrative for businesses. The good thing about e-commerce and areas like CPG is that people who like your product can end up using it more often, leading to additional purchases happening more quickly.
Keeping the Customer in Mind
Smart inventory management also helps a business keep its customers in mind across its full set of processes. Most notably, it helps a company respond to a concern that touches the heart of operations (the warehouse) and the center of the customer experience (the home).
The intersection is one of the more difficult things for companies to handle: returned goods.
A customer who wants to return a product most likely had a poor experience. Unfortunately for the business, that poor experience happened in the customer’s home, where connections can be made or broken most easily.
You have to start the damage-control process immediately, and inventory can help.
Product and inventory understanding impact returns before any customer complaints. SIM data should be used to guide your returns policy, the questions your team asks before accepting a return, and how they process it. This information will help your business understand when a product is still okay to be sold to another customer as well as how much additional inventory you need on-hand for replacements or returns each month.
Tracking products and adding that information to your database also helps you understand how much of the sale cost you’re eating for each return and potential ways to recoup it.
The majority of that work needs to happen behind-the-scenes and out of the customer’s view. They merely want to know if they can return a product and then get things from you like a shipping label and tracking number. SIM tools can help you automate that process including the creation of a new order whenever a product is being replaced.
In one action, you’re aiming to manage customer expectations as well as minimize disruption in your warehouse. Integrated data support this best by, for instance, automatically updating the shipping data of returns so your team can know how many additional deliveries they should expect each day or week. Building that expectation into your workflow helps prevent you from being understaffed and slowing down the rate at which you accept returns, so customers aren’t sitting there in frustration, waiting to be reimbursed.
At the same time, you can track greater returns information and make business decisions to reduce it. This might mean adjusting your returns policy, changing marketing to be more precise about product quality, or even finding a new source of products or materials to avoid inferior or expensive options.
Here, you’re focused on customer service. This is one of the few ways to make a name for yourself in the crowded e-commerce space. Controlling your inventory can increase costs and reduce the time it takes you to respond to customer queries, as well as adapt your overall business to better suit (or target) your audience.
Data is a crucial player in business success and smart inventory management tools give you a straightforward way to make the most of that data to drive what the customer sees and experiences, as well as how you run your operations.
Written by: Jake Rheude, BOSS contributor
Jake Rheude is the Director of Marketing for Red Stag Fulfillment, an e-commerce fulfillment warehouse that was born out of e-commerce. He has years of experience in e-commerce and business development. In his free time, Jake enjoys reading about business and sharing his own experience with others.
