The Role of Inventory Management in Supply Chain Excellence

For three years, consumers have endured a crash course in supply chain economics. And while the COVID pandemic is no longer directly responsible for major disruptions, others have risen and fallen in a fluid counterpoint worthy of a Mozart symphony — from the Russian invasion of Ukraine to Chinese threats against Taiwan, inflationary trends to escalating interest rates.

As Bloomberg reported, a bipartisan group of U.S. lawmakers traveled to Detroit in late June to pressure domestic automakers Ford and General Motors to reduce their dependence on China for essential materials, including rare minerals essential for electric car batteries. Supply chain woes also led U.S. manufacturer Instant Brands to file for Chapter 11 bankruptcy protection, as once-robust production and inventory of its flagship Instant Pot in the early 2020s bumped up against changing consumer demand.

Like a surplus of tech sector personnel during the pandemic that led to mass layoffs earlier this year, numerous manufacturers and retailers face a similar glut. Yet along with excess inventory from shipping contracts negotiated during a period of high rates, there’s also higher inventory carrying costs from nearly a dozen Federal Reserve interest rate hikes since March 2022. More than ever, it’s clear that a tactic slung around the corporate world — rightsizing — must govern inventory management to ensure supply chain resilience.

Raising the Bar: The Power of Barcodes

For small and midsized businesses (SMBs) especially, monitoring and moving stock begins with a basic need: identifying each item. One simple yet elegant tool that brings order and efficiency to a warehouse full of merchandise is barcodes. A barcode system is well-appreciated at the retail level as well — without one, checkout clerks at shops and stores would be required to memorize potentially thousands of different items, many that look alike to the human eye.

The best barcode systems streamline both the inventory as well as order management process. Being able to customize a design with perceptible fonts, colors, data and images, and to group attributes for each product onto any single barcode, are both valuable functions. The very tactile process of printing and applying barcodes to merchandise can be a satisfying part of the solution, one that can help you raise the bar on inventory management.

Fine-Tuning Through Data

Maintaining optimal stock levels while minimizing inventory holding costs such as storage, insurance and depreciation expenses can be greatly aided by data analytics. Generative artificial intelligence promises even deeper insight, with the cost-saving potential to foresee industry changes, predict weather-related disruptions, or explain missed sales forecasts to stakeholders.

Some modern inventory management tools offer real-time stock visibility across multiple warehouse locations, allowing users to buy, sell, move and supervise all inventory on one computer screen. Knowing exactly what you have is the first essential step. Through data analytics that can assess sales patterns, seasonal shifts and industry trends, you can better rightsize your inventory to avoid understocks and overstocks.

Calculating Safety Stock

Normal uncertainties like supplier delays, natural disasters or unexpected market fluctuations can disrupt the flow of goods and create bottlenecks within the supply chain. The image of shipping barges stuck in the water just beyond their arrival ports, a familiar sight during the pandemic, speaks volumes about the challenge of labor shortages and union disputes. In retail, a stream of new trends and shifts in demand also requires better management of safety stock.

Estimating the correct amount of safety stock, in retail or any industry, is guided by experience and essentials. Some of the latter include key steps such as gauging lead time in light of your order/restock cycle and other variables, average customer demand based on your reorder schedule, and desired service level to minimize stockout risk. Becoming more proficient in calculating safety stock helps you save money and practice better inventory management.

Heehong Moon is CEO of BoxHero, an all-in-one inventory management solution for small to midsized businesses widely used across retail, fashion and other industries in over 100 countries worldwide, which launched in North America this past May.