How Important is Inventory Management to Your Business

How Important is Inventory Management to Your Business

For distributors, proficient inventory management is fundamental to business success.

But how can you be sure that you get the balance of your stock right? Especially if yours is a seasonal business. Here’s a look at the common issues why inventory management is so important, particularly ahead of peak trading periods like Christmas.

What is Inventory Management?

Inventory management is the process of forecasting, purchasing, receiving and allocating stock.

It means accurately predicting stock demand so that you always have the right quantity of goods available for sale. In this way, you won’t sell out too quickly – so you can always meet customer demand. But you also don’t carry too much stock – which ties up money in inventory.

It can be difficult to manage inventory well, and some common inventory issues can derail even the best warehouse and purchasing managers.

Common Inventory Issues

One of the most challenging aspects facing distributors is navigating the peaks and troughs of seasonality. Optimising your business for seasonal trends requires you to accurately predict requirements for peak periods.

Depending on what you offer, how much you sell may be affected by all manner of things. The summer weather will improve sales of outdoor goods and BBQ foods. Annual celebrations like Christmas and Easter will see increases in sales of gifts and certain foods and drinks. And Black Friday is often the driver of sales of electronics.

Accurately forecasting your sales for these seasonal periods means analysing your historical data as well as taking into consideration any prevailing trends. Optimising your stock levels also involves determining the right reorder points for each item you sell, so that you can maintain the inventory you hold at your preferred levels.

If you get this wrong, you risk ordering more stock than you need. This ties up your money and also means you have to warehouse the stock, which also costs you. Not ordering enough stock though can result in customer dissatisfaction and missed sales opportunities. If you still try to supply the goods, then you will spend more by expediting new stock from your suppliers or in despatching it quickly to satisfy the demand.

Inventory management software can give you the information you need to not only forecast trends and potential sales volumes, but also to calculate your holding costs and profit margins. This can be invaluable in the decision-making process, allowing you to determine how much it will cost you to carry certain amounts of stock compared with the profit you would make from it.

Another potential hurdle for distributors comes in allocating stock across channels and between outlets in each channel. You firstly need to accurately predict which channels will be most active. This is currently taxing for retailers that sell online. While ecommerce has consistently been on the up, the pandemic added an additional layer of planning complexity. Online sales went up dramatically during lockdowns and restrictions, and those historical sales have to be taken into consideration when forecasting volumes by channel.

Additionally, inflation, war in Ukraine and the cost-of-living crisis have all had an impact on buyer behaviour, making it hard to predict sales precisely.

Even if your predictions were right and you ordered the right amount of stock, there’s another crunch point when it comes to stock accuracy. Knowing what inventory you hold and where it’s located is vital. With stock counts and cycle counts, you can track your stock across all your channels, warehouses and sales outlets.

Improved Inventory Management

With ERP software such as NetSuite, you can improve your inventory management. Using NetSuite’s inventory management features you can improve your forecasting, purchasing and stock accuracy.

With automated replenishment processes that use reorder points and lead times, NetSuite can ensure you maintain your preferred stock levels for each of your products. You can also balance supply and demand between channels and across outlets.

Cycle counting features prompt you to make regular checks of your inventory, ensuring better stock accuracy. And demand planning and distribution requirements planning both help make sure that you always have just the right amount of stock available, and in the right locations, to meet customer demand.

How Did Your Warehouse Operation Fare this Christmas?

With Christmas behind us, it’s time for distributors to assess how they fared. For most retailers, whether they sell online , in store, or through multiple channels, it’s their busiest sales time and is a critical point in the year for inventory management.

How did your operation fare this Christmas? It has been the first time without pandemic restrictions in place, but sales seem to have been stifled by reduced consumer spending power due to inflation, high energy costs and the cost-of-living crisis.

Were your inventory management approaches successful? Maybe you had just the right amount of stock to cater for demand. But perhaps you sold out early and could have sold more. Or maybe you have been left with surplus stock that you now need to consider discounting or promoting. If you’re a food and drinks business, that’s not always as easy, and you may have had to put perishable goods down to shrinkage if you didn’t sell them.

If your post-Christmas assessment shows that you could have forecasted demand more accurately, then now is the time to investigate new software that will improve your position in time for your next peak period – for Easter, summer, back to school, Black Friday – and even next Christmas. Contact us to find out how NetSuite’s advanced inventory management features can help you.


More Information

Stephen Adamson


[email protected]

(+44) 115 758 8888
Stay Connected

We make a selection of our blog’s most relevant news, a section dedicated to what we know best: Cloud Business Management Solutions. Sign up to our newsletter.