Eliminate inventory distortion once and for all.
Manufacturers all over the world face the same issue. Too much inventory that’s not selling, tying up working capital. Or too little stock to fill orders, resulting in out-of-stock situations.
So what’s the bottom line?
Businesses are losing out on millions by not optimising their inventory. IHL Group research shows that in 2024 alone, inventory distortion hit $1.7 trillion. That’s the value of combined out-of-stocks and overstocks that businesses have to absorb.
Thankfully, inventory management solutions are evolving quickly to combat these costs. With the right planning solutions for manufacturers on board, businesses are beginning to see the benefits.
Let’s look at what’s available…
What you’ll learn:
- Manual techniques no longer cut it for modern inventory management
- Inventory management solutions that improve efficiency
- Software technology solutions that work
- Steps to implement in your own business
Manual Methods Can No Longer Cut It
Inventory management teams used to be able to get away with spreadsheets and manual counting. Those days are long gone.
Manufacturing has changed. Supply chains now span the globe. Customer demand changes in the blink of an eye. Margins are tighter than ever.
The manufacturing vertical leads the market for inventory management software with over 22% share of software revenues. That’s because more manufacturers are realising that doing inventory by the seat of the pants no longer works.
Consider this:
Research has found that, on average, a business has about $142,000 of inventory that it simply doesn’t need. For some industries, such as construction and medical supplies, that number can exceed $300,000.
That’s money that could be used to invest in your business, buy new equipment or hire additional staff.
Old-school inventory management methods simply cannot deliver on the need for real-time data, accurate demand forecasting and fast-paced operations that modern manufacturing demands.
Modern Techniques for Improved Efficiency
There is no one magic solution to inventory management.
In fact, some of the most successful inventory optimisation is actually a combination of techniques that all support each other.
Demand Forecasting
Gone are the days of hunching over your data and trying to guess what’s going to sell next month.
Demand forecasting systems bring together all of your historical sales data, market analysis, and seasonal patterns in order to predict future demand with a high degree of accuracy.
The best solutions use AI to help improve and adjust predictions over time. It recognises patterns that would be invisible to the human eye, adjusting for variables from economic conditions to competitor activity.
Just-In-Time Inventory
The old model of buying and storing as much as you can before you use it is prohibitively expensive.
Just-in-time inventory systems and techniques make sure that your stock only arrives as you need it for production.
The benefits of JIT are crystal clear:
- Warehousing costs are dramatically reduced
- Less waste due to expired or obsolete stock
- Cash that would have been tied up in inventory can be used for other things
- Smaller environmental impact
It does, however, require careful supplier relationships and excellent communication across the entire supply chain.
ABC Analysis
Not all items in your inventory are created equal.
ABC analysis is a technique for sorting your inventory into groups by value or importance. The A-items are the ones that are worth the most and must be tightly controlled.
The B and C categories are of lower value or have less predictable demand and therefore don’t need to be managed as closely.
The idea is to focus your team’s resources where they are most valuable. Smart manufacturers don’t manage their SKUs all the same way, instead prioritising their efforts.
Safety Stock
Running out of the critical items on which your production line depends can grind everything to a halt.
Safety stock is a buffer that protects you against unexpected surges in demand or supply chain disruptions.
The key is to find the right level of safety stock. Too much and it’s capital that could be used more productively. Too little and you are exposed to a greater risk of running out. Modern inventory management software can calculate the right safety stock levels based on lead times, demand variability and desired service levels.
Inventory Management Solutions Using Technology
The market for inventory management software is expected to reach $4.79 billion by 2032, growing at an annual rate of 9.8%.
This huge growth is all down to the role technology is beginning to play in modern operations.
Cloud-Based Platforms
Cloud platforms give your teams a real-time view of inventory across multiple sites. Your team members can access the same information whether they’re on the shop floor, out in the warehouse, or working remotely.
Cloud-based solutions also mean that updates to inventory data happen instantly and can easily integrate with existing hardware and software.
AI and Machine Learning
Artificial intelligence takes forecasting and planning to a whole new level.
AI systems are able to process huge quantities of data, identifying patterns and insights that even the savviest inventory professional would miss.
AI can be used to:
- Predict demand and optimise reorder points
- Automate replenishment decisions
- Assist with forecasting and analysis
Businesses using RFID technology are found to have 97% inventory accuracy according to industry data. This is a massive improvement over manual data entry.
IoT Sensors
Internet of Things sensors are another hardware technology that can help your business with inventory management.
IoT sensors track the movement of goods and inventory in real time. They automatically monitor stock levels and quantities, send alerts and provide data for further analysis.
Benefits of real-time inventory tracking:
- Automatic triggers for reorders
- Track the location of individual items
- Monitor temperature and conditions for sensitive goods
- Update equipment status in real time
Barcode and RFID Tags
Manual data entry is prone to error.
Barcode scanning and RFID tags help eliminate those errors during key processes like receiving, picking and shipping. Research has shown that barcode technology alone can reduce human error by more than 43%.
Steps to Take With Your Business
Identifying and understanding modern inventory management techniques is only half the battle.
Getting those techniques into place in your own business is the challenge.
Step 1: Know Your Starting Point
The first step towards improving inventory management is understanding where you stand at the moment.
Audit your existing processes. Where do bottlenecks and mistakes happen? What are your current inventory accuracy rates like?
Establishing a baseline allows you to track progress and measure improvements down the line.
Step 2: Set Specific Goals
Goals need to be clear. What is success for your business? Is it a specific number for improvement of inventory accuracy?
Or perhaps the aim is to reduce excessive or obsolete inventory by a certain amount?
Goals give your inventory team focus and keep everyone on the same page.
Step 3: Choose Technology
Not every inventory management solution is going to be the right fit for your business.
Smaller operations might be best starting with an off-the-shelf cloud-based software system that can easily plug into their existing processes.
Larger or more complex manufacturers may need a dedicated enterprise solution with built-in data analytics and integrations.
Step 4: Train Your Team
Technology is only as good as the people who use it.
Make sure your team members are properly trained so they understand the new systems and processes. Address any concerns openly and reward early adopters to build momentum.
Step 5: Monitor and Improve
Inventory management implementation is not a one-off project. Make sure you continue to track key metrics, seek feedback from users and use that information to continuously improve your processes.
Final Thoughts
Inventory management is not a luxury for businesses that have the budget for it.
It’s a necessity. Many of the techniques we’ve discussed today are now required if manufacturers want to compete.
The facts are there for all to see:
- Inventory distortion cost businesses $1.7 trillion in 2024
- Manufacturers have an average of $142,000 of inventory more than they need
- Manual inventory methods cannot deliver the speed and accuracy that modern manufacturing needs
The good news is that modern inventory management tools and techniques are making big improvements.
If you’re ready to take the first step, just focus on one area of improvement and build from there.
