Is Your Inventory Controlling You?

July 02, 2011 · by Dale Traxler

We are on vacation this week, and we noticed yesterday that several items sold that were out of stock for a week or so. What that meant to us is that a supplier order came in yesterday and that the order had been checked in to our ERP system by our receiving staff. Once that is done, the item is immediately available for sale in our stores. The good news was, our system was working properly, and we did not have to "do" anything to reinstate the item or make it visible and available for sale in our various online stores.

Several years ago, before we had an inventory control system, we felt like our inventory had taken control over our growing business. We had about 3,000 SKUs from dozens of different suppliers. Customers consistently placed orders that for items we had run out of before we could remove them from our websites. Many items were difficult to restock, or had long lead times. We were managing prices, costs, supplier data, etc. in spreadsheets. All in all, it was extremely challenging to stay on top of things without full time management. Going on vacation just meant you fell that much further behind on keeping up with inventory.

Sound familiar to any of you? When you are a smaller business, you put up with it, but when you start to push past $500K in sales or stock a a large number of items, you really need to look into an inventory management system. Either that or your inventory starts to control you!

Benefits of Inventory Management Systems

As background, we use an Enterprise Resource Management (ERP) system from Netsuite to run our entire business. One key component, and the real reason we invested in an ERP system, is the Supply Chain and Inventory Management module. With Netsuite, the Inventory Management is fully integrated with our eCommerce websites, so out of stock items cannot be ordered, but as soon as the inventory is replenished, it is automatically made available for sale. Likewise, all item costs and sales information are automatically integrated with our financials. But the real focus of this post is on inventory control itself.

The benefits are any type of inventory control system are many, but here are some highlights:

• Drastically reduces our inventory costs by allowing us to shift to a "just in time" model for high turnover items
• Provides visibility into profitability, turnover and other key metrics for every item we sell
• Allows us to set reorder points and adjust for seasonality automatically
• Expedites the ordering process by producing automated requisitions or purchase orders by vendor
• Provides quick visibility into slow moving items or seasonal trends and allows for quick adjustments to stocking levels
• Generating a PO or an order takes minutes rather than hours
• Provides instant access to "stock on order" to support customer inquires
• Eliminates the need for a complete annual or quarterly physical inventory
• Provides accurate profitability reporting through out the year
• Allows us to track costs and eliminate errors by creating a complete business process flow through purchasing, receiving and account payables
• Prevents orders from being placed for out of stock items in our websites
• Allows for electronic integration with suppliers - if your suppliers have those capabilities, ours don't ;-(

A recent example of a key benefit of inventory control has come from dealing with the commodity markets. Some of our best selling products are made from Sterling Silver. As you probably know, the price of silver has been extremely volatile over the past 18 months. We've been able to stay ahead of price increases and reductions closely monitoring our margins and adjusting our own prices as the market changes. This would have been very difficult with out a comprehensive inventory management system.

Summary

For many smaller retailers, the cost of inventory management systems probably seems prohibitive. Frankly, I have not followed the market for those types of solutions closely since we acquired Netsuite back in 2007, but even then, running inventory in Quickbooks was probably viable for most businesses with a small number of SKUs. Today, I am sure many ecommerce platforms include some level of inventory management. If you are not using some type of automated system, I highly recommend you look into it. It has save us a lot of money on inventory, and contributed a lot of revenue because we had the right items in stock at the right price. It has also saved us an incredible number of hours on labor to manage orders, receiving, vendors, and our various websites.

Category: Evolving eBiz | Tags: inventory, inventory control, Productivity Tools, Product Sourcing, Inventory