Inventory management takes a different form for every business, depending on factors such as size, type of product, and how quickly a brand is growing. Many retailers start out with spreadsheets, and for some, this critical operational task may evolve into a task handled by an entire team, in combination with tools and programs. Regardless of where your business stands today with inventory management, it’s imperative to your growth. Without the visibility to know where your inventory is, across channels, at all times, you’re making critical business decisions with incomplete information
Inventory management is becoming increasingly important as brands are now expected to sell across multiple channels. Days inventory outstanding has risen 8.3 percent the past five years, and the number of warehouses is on the rise. That’s a lot more inventory and stock to keep track of. Still, almost half (46 percent) of small businesses don’t use inventory management software at all.
What Is Inventory Management Software?
While inventory management is the process of tracking stock from manufacturing through fulfillment, inventory management software is a tool that makes that process more efficient while providing you with higher levels of visibility and control. Essentially, inventory management software consists of the business applications that manage inventory for you.
Inventory management software is far more robust than the old-school spreadsheet system. Often, inventory management software will use barcodes and/or radio frequency identification (RFID) to track stock. Not all inventory management software options have the same features. Some systems are focused on the manufacturing process, others on the warehouse, and more robust ones take a holistic approach to managing inventory. In many cases, inventory management software will monitor how much inventory you have at any given time across all your sales channels. Inventory management software also typically supplies reporting capabilities that provide insights into your business and customers.
Inventory management software automates and streamlines the inventory management process. It’s also common for inventory management software to integrate with other tools, such as your eCommerce site, accounting, fulfillment, and shipping tools. In retail, inventory management software is typically tied to point-of-sale (POS) systems.
Benefits of Inventory Management Software
In a study conducted by the University of Chicago, 65 percent of one retailer’s inventory records were inaccurate. Without accurate data, your views into your business are skewed—and you could end up making costly business decisions.
The need for accuracy only heightens as you consider omnichannel retail. Almost half (44 percent) of American consumers shop across multiple channels. The more complex consumer behavior gets, the more difficult it becomes to track manually. The right inventory management software can gather data from all of your selling and fulfillment channels and sync it together.
Additionally, since inventory management software can talk to other systems retailers have in place, there’s a reduced risk for human error and a better chance at identifying discrepancies in the data. In fact, 15 percent of inventory distortion issues are because the software can’t talk to each other.
Inventory management software often generates reports based on all the data it receives. These reports can provide insights into your inventory, warehouse(s), purchasing, marketing, and even consumer behavior. Target used its inventory management software to understand how its brick-and-mortar locations were turning into fulfillment centers: 15 percent of their online sales in 2015 were in-store pick-ups.
It’s imperative to remember to do something with the data you receive from your inventory management software. 25 percent of retailers face issues with inventory management that they attribute to the lack of information-sharing throughout the company. Inventory management software makes it easier to glean actionable insights from the data, as opposed to presenting a bunch of raw numbers in a spreadsheet from which you must draw conclusions and trends yourself.
Save Time With Automation and Increased Efficiency
Inventory management software automates many tasks related to tracking and managing inventory. This frees up time that you or your employees could be spending doing something else, something to grow your business. Time is money, so any tool that can increase efficiency is also going to help you be more profitable. According to one Stitch Labs customer, James Hargett of Chubbies Shorts, “It used to take me 4 hours every time I wanted to upload our inventory. Now, it’s a 15 minute process. That’s 3 hours and 45 minutes of my day, thanks to Stitch, that I can spend on other, more important tasks. And when you release new products as often as we do—sometimes up to three times a week—that’s a lot of time saved.”
Many inventory management systems will categorize products for you, reorder inventory when below par levels are reached, and generate reports that someone would otherwise have to do manually.
The bottom line? Inventory management software increases your bottom line. “Entrepreneur” reports that retailers can see up to a 50 percent increase in profits with careful inventory management. Whether that figure’s accurate or not, there’s no doubt that inventory management software provides an abundance of ways to increase profitability.
In addition to reducing labor costs, inventory management software contributes to your retail business’s profitability. By having deep insights into your business, you can make informed business decisions to help you continue to grow. Looking at things like your inventory turnover ratio, average order value, and other key metrics—across all your selling channels—gives a holistic view of your business. And that means you can forecast more accurately and avoid costly issues, such as backorders and out-of-stocks.