Any business that sells physical products needs to effectively manage its inventory. Inventory management becomes especially important when you’re trying to grow your business. An effective inventory management system will enable you to:

  • keep track of your existing inventory. This includes:
    • knowing how much stock you have available on hand
    • flagging expiring inventory so that you can prioritise selling those items first,
    • re-ordering new stock when the inventory level is low to ensure you have sufficient stock to match daily demand
  • effectively forecast future inventory requirements
  • quickly react to sudden changes in market demand
  • increase inventory turnover (by optimising the amount of inventory you have on hand so you can avoid storing inventory for extended periods)
  • streamline supplier management, including communication with suppliers for the purpose of ordering, delivery, dispute and settlement

Perhaps most importantly, the best inventory management systems are those that will help you improve your business’s cash flow by helping you continuously hold the optimal amount of inventory.

These are the various types of inventory management systems that may be suitable for your business.

 

Pull inventory management systems

‘Pull’ system works best for businesses with a relatively short production cycle. In a pull inventory management system, the production cycle is only initiated when an order is received. An example is the ‘Print on demand’ for books.

The main advantage this system is that there’s never any need to store large amounts of inventory. Indeed, if you choose this method of inventory management, you might never need to store any inventory at all. This means you don’t have any cash tied up in stock that’s sitting on your shelves waiting to be bought.

The disadvantage of this system is that some customers might want their purchases immediately. Additionally, if there is an issue that causes production delays, you may find yourself in the position of having to refund customers that cannot wait for late delivery.

 

Push inventory management systems

A ‘push’ system of inventory management is, as its name suggests, the opposite of a pull system. If you implement this system, you need to predict future demand for your products and obtain sufficient inventory to meet that demand at an earlier date.

The advantage of this system is that you can take advantage of bulk, wholesale prices to buy large amounts of stock at a discount, thereby making more profit when you eventually sell the inventory. The disadvantage is that you have to pay storage costs. Plus, if the actual demand is less than the predicted demand, you may find your stock becomes obsolete before you manage to sell it.

 

Pull/push systems

The majority of businesses today use a combination of the above two inventory management systems. You might see this kind of push-pull system referred to as ‘lean inventory management’. Businesses using these systems can purchase bulk amounts of raw materials ahead of time and then only assemble them into the finished product once an order has been received.

Personalised clothing is an example of a product that works well for this kind of system. Retailers can stock up on the base clothes and then add the customer’s name, image or message once the customer has placed their order.

This kind of system represents the best of both worlds. Retailers can take advantage of bulk discounts on raw materials that won’t become obsolete or take up as much storage space. At the same time, such systems minimise the amount of time it takes to produce the final product.

 

Online tools to support your growing business

Once you’ve decided which inventory management system is right for your business, consider using quality supply chain/inventory management software to help simplify the system’s implementation. By doing so, you’ll ensure your working capital isn’t unnecessarily tied up in inventory providing you with better cash flow and more opportunities to grow your business.

Of course, this isn’t the only way to increase working capital. Often cash flow can be negatively impacted by late payments, for example. Invoice discounting and other short-term capital solutions are therefore a great complement to an effective inventory management solution. When used together, invoice discounting and an effective inventory management system are powerful tools for ensuring a healthy level of working capital

 

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