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Business Management Review | Friday, March 17, 2023
Distribution is the wild west of inventory management. Inventory management begins with sprawling warehouses, work teams, and equipment and ends with stock counts, inventory optimization, and logistics.
FREMONT, CA: Management of inventory is the Wild West of distribution. Everything must function flawlessly for inventory management to be successful, from expansive warehouses, labor teams, and equipment to stock counts, inventory optimization, and logistics. If anything goes awry, you risk losing significant time, resources, and reputation.
Inventory managers must face numerous obstacles, including—rising customer demands for speed, accuracy, and adaptability, unpredictable demand, lack of visibility into what's on the shelves across distribution facilities and branches, lack of visibility resulting in inefficient inventory location, packing or shipping errors, stockouts, and inaccurate lead times.
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With so many moving parts, business leaders must have access to real-time inventory insights and make data-driven choices based on critical performance metrics.
WHY IS INVENTORY METRICS TRACKING SO IMPORTANT?
Distributors can view everything occurring within their business and make modifications to enhance efficiency, accuracy, and customer happiness when monitoring inventory metrics.
Throughout the year, for instance, you can track inventory shrinkage (the number of products you should have but don't) and decide whether discrepancies are due to damage, theft, or human error.
Distributors who do not consistently analyze inventory indicators or focus on the wrong ones may lose income without understanding why problems occur or how to resolve them.
Unfortunately, antiquated tracking systems, data silos, and a lack of visibility make matters more complicated than necessary. Instead, it is essential to:
Define the inventory KPIs most essential to your business and choose the appropriate technological solution to help you quickly view, trust, and act on the data.
WHAT INVENTORY METRICS SHOULD YOU TRACK?
Define the inventory metrics that are most important to your company's success. For example, you may prioritize warehouse management and pay particular attention to Time to Receiving (the rate at which staff prepares things for distribution) and Put Away Time (how quickly employees store inventory).
On the other hand, you should focus more on fulfillment and keep a close check on your Perfect Order Rate and returns.
A distributor can measure hundreds of crucial inventory variables to enhance operations. Here are a few instances:
INVENTORY TURNOVER (BY CATEGORY)
Inventory turnover measures the frequency with which merchandise is sold and departs the warehouse within a specified period (such as every quarter or year). Ideally, you track sales by category and analyze the data to see how well your A, B, and C products sell. Then, you may discover a stock that is not moving and make necessary adjustments.
LOST ORDERS
When was the last time an item or order mysteriously disappeared? Especially when dealing with expensive commodities, lost orders (typically due to a lack of inventory or human error) can be costly. Monitoring this figure will provide valuable insight into where these errors are occurring and how to prevent them in the future.
RATE OF RETURN (RETURN ON INVESTMENT)
Are the returns on your inventory investments satisfactory? Measuring your rate of return (return on investment) is essential for assessing whether and where your business is most profitable and what you can do to increase margins.
VISIBILITY INTO PRODUCT PERFORMANCE
How well do your products sell? Monitoring product performance reveals which things are selling well and which are accumulating dust on the shelves. It may also reveal expansion opportunities within a product category.
AVERAGE SALES DAYS
This metric indicates how long your business takes to convert its inventory into revenue. In other words, this is the average amount of time your cash is locked down in inventories. Optimizing days to sell can avoid overstocking and keep a more significant cash reserve.
PREDICTION ACCURACY
Consumer demand can fluctuate abruptly. Reliable demand forecasting is essential for supplying products at the appropriate time. A suitable ERP solution, such as Microsoft Dynamics 365 Finance and Supply Chain Management, will analyze previous sales trends and provide recommendations. Make judgments based on data regarding what things to stock and in what quantities to save money and increase long-term profitability.
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