Inventory is vital in the world of business. It’s the materials and the final product that businesses sell to generate revenue. There’s no money without inventory. Inventory management is the key to running a profitable business. Without a good inventory management software, businesses will struggle to survive.
There are a lot of inventory management systems that don’t track inventory. There are those that still use a manual inventory process. Maintaining an accurate excel inventory sheet can consume a lot of time. It can also be prone to errors. Some companies who use manual inventory processes may order parts they already have in their inventory. That’s because they’re not 100% sure they already have them.
To avoid such problem, companies need to make sure they manage their inventory. But what is an inventory management software? What does it do?
What is an Inventory Management Software?
An inventory management software is a powerful business application. It’s used to track, manage, and organize the inventory. Inventory may include product sales, material purchases, and production processes. Businesses no longer use pencils and papers to track their inventory. Now, they can use systems that are based on radio-frequency identifications (RFIDs) and barcodes. This is for them to see when shipments come in and where raw materials are located. This is also for them to know when the products are shipped.
Using this type of software, businesses reduce the efforts and time to perform all the tasks. Before, businesses spend more time in tracking. Now they can focus on finding, analyzing, and minimizing inefficiencies of their systems.
Why is This Software Important?
Inventory management software plays a big role for many businesses now, in terms of data control and reducing costs. Without this, companies will not run efficiently and will lose more money. That’s because companies need an accuracy in the accounting of:
- how much the inventory has
- where the inventory is located
- what inventory is needed in completing future orders
Inaccuracy has been the biggest challenge for companies using manual inventory. This problem lasted for years and has affected many companies before. Inaccurate inventory records can create a high lead time. High lead time is bad for companies. It means that there’s a slower response to consumers’ demands. This results to stock outs and market changes. This also results to customer dissatisfaction, especially when the products aren’t available when needed.
The margin for error for small businesses is too small to not meet the required demand. Thus, for the last 4 years, only 50% of small businesses are able to survive. Shorter lead time has also become a key source of competitive advantage. As a matter of fact, reducing lead times of global manufacturers can increase market shares. It can also increase profitability.
How Inventory Management Software Affects Inventory Turnover Ratio
Inventory turnover is a key metric, especially for small businesses. It refers to the cost of goods that are sold, divided by the average inventory on hand. If your turnover rate is either too high or too low, then your business is overstocking. What’s worse is that your business may be unable to meet the consumers’ demands. Either scenario can cost a fortune.
Low turnover ratiomeans there are duplicate orders. It may lead to deteriorating value. That’s because products will end up sitting on the shelves or in the warehouses. High turnover ratiousually leads to an excess in shipping costs. That’s because there’ll be a need to replace out-of-stock parts quickly. It may also lead to uncompleted orders and wasted time.
Turnover ratio should always be balanced. A more balanced turnover ratio can lead to a greater efficiency. That includes built-in lead times. Because of this, the company can deplete the items quickly. Employees can spend their time on something else instead of working on manual spreadsheets. This kind of efficiency can result to a lower payroll cost. That’s because employees will no longer need to spend their time in tracking down each orders or parts.
Is This Worth The Investment?
Many companies are hesitant in investing in an inventory software management. They are still not ready to switch from their manual inventory accounting to a new automated system. Little do they know that they can increase their profitability 20% to 50% more if there’s a careful inventory management in place. These numbers are significant and should not be ignored.
So, is it really worth the investment? The real question should be, how can businesses not afford to have a management software for their inventory in 2019? Aside from fixed assets, inventory is among the most valuable assets in a business. You should never let those assets unsupervised, unregulated, and unchecked. Those assets go from the supplier to the consumer. It may lead to a decrease in the company’s profits if they aren’t checked and supervised.
Meanwhile, the ROI (return of investments) for management software is surprisingly enormous. There are five areas where businesses see big return of investments. These are:
- Saving space. Bin locations and storage areas that are clearly defined result to a more organized warehouse. These areas can serve as an efficient warehouse for the company.
- Inventory Management. As mentioned above, lack of stock or an excess in stock is expensive. Warehouses can help cut costs by not buying inventory until it’s necessary.
- Customer satisfaction. Good customer service has its perks. It can greatly benefit the company. Satisfying the customers’ needs can help prevent the company from violating any service-level agreement.
- Maximizing Labor. Increased productivity is a sign of a good inventory management system. Companies can maximize the labor by getting themost of the employees without wasting their time. This includes training new employees.
- Reduced wear and tear. There are assets involved in moving your inventory, like trucks and pallet jacks. These assets can benefit from an efficient routing and a consolidated activity.
Having an inventory management software is undeniably beneficial for businesses. But not all software are of the same quality. Make sure to do your research about the types of software. Choose the one that your company would benefit from to avoid wasting money.