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- Operational Efficiency and the Role of Inventory Management
- Performance Criteria for Inventory Management Systems
- Real-Time access of inventory management data
- Different Types of Technology in Inventory Management
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Technological adaptation is one of the critical things in inventory management to create and maintain a competitive edge. Inventory management, just like many other business fronts, has a wide array of technological options to choose from to maximize efficiency.
A technologically advanced inventory management system aims to optimize the available operations and yield the most out of them. With the availability of multiple inventory management technologies like Transport Management Software, it is essential that one knows how to pick the right type of TMS.
Operational Efficiency and the Role of Inventory Management
Operational efficiency is defined by the tools, strategies, and techniques used by an enterprise to deliver on its objectives most practically and efficiently possible. From a business perspective, operational efficiency can be regarded as the business approach to reduce or entirely remove unnecessary costs. It works to deliver products and services to its customers in ways that have the most customer satisfaction and cost-effectiveness for the business.
Operational efficiency gives room to several benefits like optimal resource utilization, improved production outcomes, identification of optimal distribution channels, and inventory management improvement.
In a business, the most crucial task of an operational manager is to identify and formulate approaches to do away with business operations that don’t contribute as much to the business’s end objectives. For this stratification of the company to be possible, the operations manager first has to identify the abstract operations of the business and then shave off any unnecessary operations.
One of the essential roles of inventory management in a business is creating and maintaining an equilibrium between demand and supply. To achieve this demand-supply balance, a company has to efficiently operate the production needs of the suppliers as well as the marketing needs of the customers.
The availability of a sound inventory system in a business is a major determining factor in how well the company will meet its customers’ needs and manage inputs from its suppliers.
Here are some of the essential roles played by the business inventory management system.
Ensuring accurate and timely order fulfilments
An inventory management system ensures synchrony between how orders are generated and fulfilled, both in and out of business. With a sound inventory management system, a company can monitor supplier actions like delivery reliability and the performance of goods in stock due to customer demands.
Application of Universal Product Codes
At the inventory stage of operations, a business can attach barcodes to its stock, making it easier to manage and track the store.
Improvement of security infrastructure and systems
Besides the physical security improvement resulting from efficient inventory management, it will also improve the company’s production and supply security. With proper inventory management, a business can predict changes to their production or supply abilities by anticipating changes in their inventory through historical data.
Computerization of inventory processes
While automation is possible for most business operations, well-managed and documented processes are easier to automate. Proper inventory management comes with a wealth of data. You can identify patterns in the historical inventory data from which automated processes can be designed, like predictive ordering supplies.
Performance Criteria for Inventory Management Systems
Key performance indicators(KPIs) are the primary metrics used to define the performance and progress of a business towards its intended objectives. From an inventory management perspective, KPIs help evaluates the inventory process and give insights to the company on how to better work towards its goals.
Here are some of the performance measurement criteria for inventory management systems in businesses.
Inactive or dead stock is the amount of unused stock over long periods. While having idle stock is nearly unavoidable for most enterprises, the business’s idle stock can be used by the company to guide decisions on price determination.
This metric is used to calculate the flow of stock in and out of business. The inventory turnover is used to measure the amount of time product stock spends in storage. Inventory turnover is a ratio of the amount of stock purchased to that of supply in hand.
Inventory accuracy helps ensure an accurate and matching headcount of the stock in storage to the numbers in the books. If there’s no match between what’s in store and what’s recorded, the business will more often than not have to contend with high rates of inaccurate orders and high unplanned costs.
Lost sales are calculated as the rate with which potential customers are lost due to asking for items that the business doesn’t currently have in stock. Though lost sales are nearly inevitable for most business operations, having a detailed and reliable inventory management system reduces the frequency with which lost sales are likely to occur.
Order Cycle Time
Order cycle time is also known as order lead time and measures the time taken between a customer placing an order and receiving the goods. Though this metric measures inventory management system efficiency, it relies heavily on other business aspects like production and the supply chain.
The backorder rate measures the number of orders a company cannot order due to inadequate stock. A business’s backorder rate shows how efficiently it stocks products that are in demand.
Real-Time access of inventory management data
Real-time inventory management relies on technologies like barcodes alongside inventory management software to record inventory transactions in real-time.
In the fast-paced technological age that we live in, access to information in real-time may provide a competitive advantage to a business and help it overcome possible failures. Real-time inventory management gives a picture of the changes to an inventory as they happen, helping influence supply chain decisions.
One of the main advantages of having real-time inventory management is preventing excessive stock or unanticipated stock exhaustion. When having real-time information, a business can tap into the supply chain only when necessary and only make purchases or sustainable orders.
Different Types of Technology in Inventory Management
Picking the right inventory technology is essential in ensuring that a business has and maintains competitive advantage. Here are some of the technological advancements in inventory management.
Computerized inventory management
Automated inventory management systems rely heavily on tracking technologies such as barcodes and RFID to manage the information about the flow of items. Through technologies such as the Internet of Things, it is now possible to automatically track and analyze information about product flow without the need for human involvement in scanner activation.
Inventory management software applications can be either custom-made or stock applications that offer computerized inventory management systems. These software solutions make it easy to exchange data in real-time and fast-track the data analysis process.
Automated inventory transit management
Monitoring of goods in transit is made possible by IoT technologies, through which a business can now take count of stock items while in transit. On the customer’s end, the company can show the status of the goods they have ordered in transit, improving customer satisfaction.
While inventory management is mistaken as something reserved for big enterprises, small and medium-sized businesses need this role equally. Knowing the right inventory management technologies to use might be a hectic affair, especially with the influx of technologies promising several operational advantages.
Several inventory management technologies choose to improve the success odds for businesses that take their inventory management seriously. Though success metrics vary from one company to another, one common thing is the tremendous role technology has played in making inventory management more effortless than ever.
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