Managing the complexities of inventory

At its core, inventory management sounds straightforward enough: order products, store them somewhere, sell them to your customers and restock them as needed. Peel back the layers though and you’ll see that inventory management is anything but simple.

In fact, it can be downright daunting in a selling environment where consumers and business customers alike have come to expect accurate, expedient deliveries within a day or two—sometimes less.

These expectations have put new hurdles in front of shippers that have to manage e-commerce and omni-channel sales across multiple channels; meet their customers’ growing demands for a better buying experience; and manage rising transportation costs. Some tackle the problem by leasing new warehouse space, stocking up on inventory, and then positioning those goods in close proximity to their customers. Not only do these strategies cost money, but they also work against the basic philosophies of maintaining lean inventory reserves in order to save capital and utilize less real estate.

Turning to technology
To help solve their inventory pain points, companies are using systems that are either offered as standalone solutions or integrated into enterprise resource planning (ERP) platforms. These systems help shippers fully or partially automate activities like demand forecasting, order placement, stockout alerts, goods tracking and replenishment.

By incorporating tools like barcode scanning, inventory optimization (i.e., maintaining the right quantities of every SKU), stock notifications, returns handling, and multi-warehouse management, the software gives companies better control of their inventory management processes while also saving on labor and reducing inventory needs.

The problem is that a lot of companies are still using spreadsheets, clipboards, phone calls, e-mail and other manual processes to order, track, and maintain inventory. “Over the last 12 months, I haven’t seen any greater levels of adoption of inventory management applications,” says Ian Hobkirk, president at Boston-based Commonwealth Supply Chain Advisors. “In fact, it can be the hardest lever to push in supply chain. Despite that, there are some trends that are pushing companies closer to needing to adopt these systems.”

For one, as companies grow their e-commerce channels, there’s an increased need to operate in a multi-distribution center environment. Take the shipper that has a single DC situated near a port city, for example. Selling to a wholesale channel for most of its existence, that company was never forced to pay much attention to outbound transportation. And because it produced its goods in the Far East and shipped them into the Port of Los Angeles (to minimize inbound costs), it also had little need for a centrally-located DC.

As that company’s e-commerce channel began to grow, its inventory management needs became more complex. “Suddenly, the company has a vested interest in having inventory positioned closer to its customers versus its sources of supply,” Hobkirk explains. “That’s driving companies to relocate that single DC to be more centrally located or to open a second or even a third DC that would enable it to offer two-day ground/parcel service across as much of the country as possible.”

Once the shipper makes that move, its inventory management processes have to adapt accordingly. “When it makes the leap to multiple DCs, the company suddenly needs a much more sophisticated inventory management approach,” Hobkirk points out. For example, bringing in products from the Far East and storing them under one roof is no longer an option. Companies must decide what to put where—and in what quantities—in order to meet customer demand.

“If it has an East Coast DC to supply, will those products be shipped from the West Coast DC or will they come directly from a supplier? And, will the shipper stock all of its SKUs across both DCs, or will it use a hub-and-spoke system with a master stocking DC?” Hobkirk asks. “These are complicated questions that have to be answered, and that are being driven by the rise of e-commerce.”