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What is Inventory Management?

Inventory management is the supervision of non-capitalized assets (inventory) and stock items. 

A component of supply chain management, inventory management supervises the flow of goods from manufacturers to warehouses and from these facilities to point of sale. A key function of inventory management is to keep a detailed record of each new or returned product as it enters or leaves a warehouse or point of sale. 

Inventory Management Techniques

Inventory management uses several methodologies to keep the right amount of goods on hand to fulfill customer demand and operate profitably. This task is particularly complex when organizations need to deal with thousands of stockkeeping units (SKUs) that can span multiple warehouses. The methodologies include:

  • Stock review, which is the simplest inventory management methodology and is generally more appealing to smaller businesses. Stock review involves a regular analysis of stock on hand versus projected future needs. It primarily uses manual effort, although there can be automated stock review to define a minimum stock level that then enables regular inventory inspections and reordering of supplies to meet the minimum levels. Stock review can provide a measure of control over the inventory management process, but it can be labor-intensive and prone to errors.
  • Just-in-time (JIT) methodology, in which products arrive as they are ordered by customers, and which is based on analyzing customer behavior. This approach involves researching buying patterns, seasonal demand and location-based factors that present an accurate picture of what goods are needed at certain times and places. The advantage of JIT is that customer demand can be met without needing to keep quantities of products on hand, but the risks include misreading the market demand or having distribution problems with suppliers, which can lead to out-of-stock issues.
  • ABC analysis methodology, which classifies inventory into three categories that represent the inventory values and cost significance of the goods. Category A represents high-value and low-quantity goods, category B represents moderate-value and moderate-quantity goods, and category C represents low-value and high-quantity goods. Each category can be managed separately by an inventory management system, and it's important to know which items are the best sellers in order to keep quantities of buffer stock on hand. For example, more expensive category A items may take longer to sell, but they may not need to be kept in large quantities. One of the advantages of ABC analysis is that it provides better control over high-value goods, but a disadvantage is that it can require a considerable amount of resources to continually analyze the inventory levels of all the categories.

Inventory control is the area of inventory management that is concerned with minimizing the total cost of inventory, while maximizing the ability to provide customers with products in a timely manner. In some countries, the two terms are used as synonyms.


Omnichannel Web Functions Guide

Below, is a short list of the capabilites that are an extension to the function of the systems of old, resulting in an overall suite that is powerful, but more complex than its predecessors.

  • Distributed Order Management (DOM) - After the customer visits the retailer through one of the many channel portals, DOM conducts the search for available inventory among the channels, in a pre-determined sequence, and determines from which sources an order will be fulfilled, according to business rules pre-defined by the retailer.  
  • Fulfillment Threshold/Safety Stock - A component of DOM required to deliver on the promise that ‘your items are waiting for you’ is the ability for the retailer to define a threshold of inventory that must be on hand in any one location in order for the automated system to ‘reserve’ the product for a customer, especially for in-store pick-up.
  • Order anywhere - Unified commerce says that the purchase, cart and payment customer-facing screens should be the same for all channels.
  • Ship from anywhere -  A proficient DOM engine will ensure that as long as product is available in sufficient numbers, and the inventory quantities and location meet the retailer-defined criteria, the product will ship and the customer will be charged.
  • Ship to anywhere - Allow the ship-to address to differ from the billing address and provide shipping-rate options.
  • Pick-up Anywhere - The system must ensure that the inventory either exists in, or can be shipped to the store of choice for timely customer pick-up, and then reserved for that customer for a pre-defined period of time so that the item doesn’t get sold out.
  • RTS - The system should provide the retailer with the ability to allow an order to expire if it is not picked up within a retailer-defined number of days, but immediately notify the customer when it has, and then, the items returned to stock (RTS).
    Ship to anywhere

    Allow the ship-to address to differ from the billing address and provide shipping-rate options.

    Order anywhere

    Unified commerce says that the purchase, cart and payment customer-facing screens should be the same for all channels.

Omnichannel Inventory Management Challenges


Inventory Visibility is a Priority

Without inventory visibility, retailers cannot confidently make promises to customers about product availability, shipping options or delivery dates. When store associates can locate an out-of-stock item somewhere else in the retail enterprise, and provide a potential customer with accurate, up-to-date information about where and how they can purchase it, retailers significantly improve their ability to match their inventory with actual customer demand.

Optimize Inventory Movement

Centralizing inventory data also allows retailers to apply better business logic to their allocation and replenishment decision-making on an ongoing basis.

Managing Order Management

Along with centralizing inventory data to achieve greater visibility, many retailers are seeing the benefit of centralizing order management from multiple channels. Centralization helps retailers maintain a single view of each customer, even as the customer’s shopping journey consists of multiple stages.

Find out more about Omnichannel Inventory Management

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