3 Inventory Management Techniques That Reduce Supply Chain Costs
Cutting supply chain costs can greatly improve how well your inventory management processes are able to fulfill customer expectations.
That’s an important focus in the retail industry. Retailers don’t want their money tied up in excess inventory, but at the same time, they need enough inventory on hand to meet customer demand.
To that end, retailers need an efficient supply chain. Investing in retail ERP solutions that reduce supply chain costs can help retailers maximize profits and identify ideal replenishment levels, while avoiding high carrying costs and stock-outs.
Here are three inventory management techniques that can reduce supply chain costs and increase customer service.
- Inventory optimization technology: When focusing on the science rather than the art of inventory management, retailers can use inventory optimization software. This technology uses algorithms based on customer history and industry trends to come up with an inventory forecast for the next quarter, or any time frame specified.
Vendor performance management: Vendors play a significant role in helping retailers to keep supply chain costs down and fulfill customers’ needs. When vendors miss deadlines, deliver inaccurate inventory orders or abruptly change inventory prices, they add unnecessary expenses to the supply chain. Stable vendors — meaning those that meet deadlines, honor original price quotes and consistently deliver complete inventory orders — are vital to minimizing supply chain costs.
A retail ERP system can track vendor performance indicators, such as on-time inventories or accurate inventory fulfillment, which can be used to identify inefficiencies in your supply chain.
For example, if you ordered 200 green T-shirts from a vendor, but received 215 green shirts as well as five additional shirts in an array of colors, this excess inventory could lead to unexpected and unnecessary carrying costs. Tracking vendor performance can help you pinpoint where the inaccurate orders originated.
Vendor performance data can also give retailers leverage during negotiations or bid evaluations. A retail ERP system can track specific vendor costs like inventory pricing, and retailers can analyze whether prices have remained stable or increased over time. So when a retailer meets with a vendor, the retailer can be prepared with data to question the price increases.
Vendor inventory insight: Some retailers keep inventory stored in their warehouses before delivering the products to different retail locations. However, retailers can control or minimize supply chain costs by having the vendor deliver inventory directly to a store location.
Consider this scenario: A retailer has various store locations around the country, but its warehouse is in California. One of its vendors is based on the East Coast. The retailer’s New York store location needs to be restocked with items from its East Coast-based vendor. Instead of having that vendor ship the items to the warehouse in California, the retailer can look up the vendor’s inventory availability and have it shipped directly to the New York store location. This drop shipping process cuts vendor lead time, minimizes supply chain costs, and gives insight into the vendor’s supply chain process.
Effective inventory management is the key to reducing your supply chain costs while delivering a high-level of customer service. Inventory optimization technology, vendor management and vendor inventory insight are three ways that help retailers to manage inventory more efficiently.
Author: Thomas Nielsen, Consultant at ArcherPoint
Thomas Nielsen is a presales consultant with ArcherPoint. For nearly 20 years, Thomas has held leadership roles in private industry and within Microsoft Dynamics NAV Partners including Tectura and AVF Consulting, working exclusively with retail organizations and specializing in Dynamics NAV and LS Retail installation across Europe, Asia, and Australasia. Thomas holds a Bachelor’s degree in Finance and Administration and a Master’s in Information Technology. He is a Microsoft Certified Professional (MCP) and a Certified LS Retail Consultant.