As wildly cool as inventory management is (okay, maybe we’re a little biased), it’s also widely misunderstood. That’s a problem (or an opportunity, depending on how you look at it) because good inventory management can seriously drive the bottom line. And finding the right inventory management software can be the difference between sink or swim—between just growing a little bit and hitting on all cylinders, at scale.
The four pillars of enterprise resource planning
But before we get into that good stuff, let’s start with a few important distinctions. The groundwork, if you will, for a more in-depth look at the ins and outs of what makes good inventory management software … well … good. Because beneath the broad umbrella of enterprise resource planning, inventory management is but one of four categories that are sometimes confused or used interchangeably:
- Order management – Orders are coming in and they’re coming in HOT. Good on you! Order management includes all the technology and systems needed to handle those orders efficiently and to the customer’s satisfaction. Some companies take care of order management in-house, while others use third-party order management and fulfillment vendors, such as Amazon FBA or a satellite 3PL warehouse.
- Retail automation – Sometimes, customers just want their retail purchase as fast and cheap as possible. To deliver on this demand, companies can automatically optimize things like which warehouse an item ships from, or the replenishment of low inventory between two locations, in ways that translate to better customer experiences on the receiving end. Is inventory management part of retail automation? Absolutely.
- Warehouse management – To run efficiently, retail companies gotta know what they have and the physical location in which it is located. That’s the easy definition. More broadly, warehouse management encompasses all the processes and people, logistics and tracking at work. It starts with receiving, moves to put inventory away, picking inventory when orders come, to finally shipping orders out. Measuring and tracking each step – including the people involved in each step – is essential to a high performing and lean operation.
- Inventory management – In the retail business, staying lean is staying mean. Inventory management includes the processes, software, and systems that help calibrate inventory on hand, tell those that need to know that information (i.e., sales channels like Amazon), and supply replenishment against ever-changing customer demand. It’s a magical, high-stakes dance that’s crucial to healthy and lean operations.
What’s the difference between warehouse management and inventory management?
It’s these last two areas of enterprise resource planning that tend to cause the most confusion. Say it with us: inventory management and warehouse management are NOT the same. They CAN overlap, though. Here are a few rules of thumb to help you keep it all straight:
- If you track inventory, but you don’t natively ship out from your own facilities, you don’t have warehouse management
- If you don’t receive inventory using scanners or a mobile app, but instead manually input a number for each item or total items received, you don’t have warehouse management (and your inventory management solution is, sadly, limited)
- If most of your workflows include manually inputting data (inventory received and where an item is located, for example, or if that order has been fulfilled), you don’t have warehouse management
If you ship and receive from your own facilities, track the life of an item at the SKU or lot level, manage and update inventory levels in real-time, and fulfill with have a stopgap process in place to make sure the picked inventory matches the order received, then you have both inventory management and warehouse management
Do I need to have inventory management AND warehouse management?
The simple answer is no, but the longer answer is it depends. All retailers need inventory management, that’s a fact. But some retailers don’t need warehouse management. Retailers who strictly use a 3PL or drop shippers may not need warehouse management, because your satellite warehouse provider is doing that for you.
However, you need to make sure that provider is holding up to their end of the deal, and they are sending you updated inventory levels in near real-time. If you as the retailer operate a warehouse, or use a combination of your warehouse, a 3PL and something else, then yes, you need inventory management and warehouse management (probably more so than anyone).
These are misconceptions and mixups that we come across A LOT. And it matters: companies that don’t understand the ways their own businesses leverage (or don’t leverage) inventory management and warehouse management will struggle to control inventory costs. Moreover, it can make the search for the right inventory management software more difficult when the time comes to find a new solution.
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How to find good inventory management software
Which brings us to the meat of the matter: inventory management software. It’s the flexible, code-powered system under the hood that makes all the magic happen. The thing that sends a notification to the manager to remind her to reorder a certain item. The dashboard that gives the manager’s manager an idea of how much of a certain item is expected to sell next quarter. The no-hands inventory allocation automation from a sales spike due to an unsolicited influencer promotion.
Sounds pretty neat-o, right? It is. It’s this power to automate and empower organizations to quickly and proactively manage their inventory—at scale—that’s leading many organizations to shop around. Their goal? To find a good—really good—inventory management software. Here’s why:
- They’re sick of handling everything manually
- They’re tired of searching high and low for inventory because it’s not where it’s supposed to be (or where they saw it last)
- They have no idea who put item X where, who moved item X, and who picked item X
- They’re re-ordering based on gut feeling rather than factual evidence
- They’re frustrated that the inventory levels aren’t being updated to their sales channels in real-time and can’t make in the moment business decisions
So, how do companies find the right solution? What are the must-haves for inventory management software?
The must-have capabilities
When evaluating solutions, make sure to check these off your list:
Ever heard the old adage, if you can’t measure it, you can’t manage it? Same goes for inventory: if you can’t see how much you have at any given moment, you won’t be able to make intelligent business decisions. And if your inventory is not updating all your sales channels in real time when an order is received, overselling becomes highly probable. And that’s not good.
Receiving and returns
If you can’t handle blind receiving, or you have to manually enter how many orders you’ve received, you’re going to have incorrect receiving numbers. Ideally, receiving and returns are automated by your inventory management software. If you can’t process returns your customer experience is going to suffer. If you can’t efficiently make returns resellable, you’re going to lose out on revenue.
Putaway and movements
If you can’t electronically move inventory around and record where it presently lives, you’re going to have incorrect inventory counts. How can you proactively act on and leverage your inventory levels without accurate data?
Barcoding and scanning
Barcodes are often used for inventory control. At least they should be. If you have to input a number each and every time, the door swings wide open for human error. Not to mention how time-consuming the process can be. Save the time and headache with a system of barcoding and quick scanning.
When you can automatically and accurately audit inventory, the likelihood of costly mismatches is far reduced. A good cycle counting solution has built-in redundancy, such as double-blind cycle counts, and can dial back the need and frequency for physical inventory audits.
If you’re all about the customer, then you’re all about good order picking. Order picking functionality should make it easy to find inventory, cut fulfillment times, and reduce the volume of wrong orders.
The nice-to-have capabilities
These are items that are nice to have, but not required to have a true inventory management system. Extra credit!
This is required for anything that has an FDA approval for recall purposes, or if an item has an expiration date. You know, protein powders, vitamins, and such. Companies with products like these need a system that automatically knows which items to select first against expiration dates.
Support for kits (bundled products)
Kitting is in! Some businesses need the ability to combine individual sellable items into one bundled item. For example, some bad golfers will throw only the nine iron into the pond after a bad shot, while others throw the whole iron set. Both bad golfers are going to need a replacement. Kitting gives the retailer more options to sell more product since they can both be sold individually and bundled at the same time, depending on user demand. (Good for bad golfers, too.)
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CASE STUDY: How JustBrand Limited found $100k in inventory overnight
Don’t just do inventory management, leverage it
You can have the rootenest tootenest inventory management system out there, but any attempt to expand operations and increase volume will quickly separate passable mid-market solutions from the ones built to scale—the ones capable of managing and automating many moving parts for medium, large, and enterprise level retail shops. The list above is a great place to start when evaluating inventory management software.
Why? Because inventory management software creates opportunities. Rather than reading and responding to inventory, companies can instead spend their time analyzing and forecasting. They can tap into real-time data and high-level insights to be proactive, instead of reactive. And being proactive means leveraging data to get the most out of inventory to ensure lean, mean inventory operations and happy, smiling, customers.
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