For companies that deal primarily with acquiring and moving products, inventory management is an essential aspect of doing business. A well organized and tracked inventory helps prevent stock shortages, dead stock, order delays, and errors that lead to dissatisfied customers and extra costs. Dealing in bulk quantities makes wholesale inventory management even more impactful than it is in retail, where businesses might be buying dozens of a product rather than hundreds or thousands. Today, retail customers expect quick, accurate deliveries and knowledgeable customer support, and good inventory management is essential when it comes to providing that kind of service.
What is Wholesale Inventory Management?
Wholesale inventory management encompasses all the activities involved in purchasing goods from a manufacturer and supplier, storing those goods, and selling them to retailers, other wholesalers, and other businesses. It includes activities such as making purchase orders, tracking inventory movement as it is received from a manufacturer or sent off to a buyer, tracking inventory levels, and determining optimal stock levels and reorder points. When working with wholesale quantities of merchandise, failure to properly manage inventory can result in substantial costs and losses.
Why is Wholesale Inventory Management Important?
Buying products in bulk makes wholesalers particularly susceptible to price fluctuations and changes in demand. It鈥檚 therefore important to have a firm grasp of current inventory levels, past trends, and future needs. Below are some of the ways that wholesale inventory management helps streamline operations and improve product margins.
Know exactly what you have in stock: Accurate stock levels are key to keeping customers happy and minimizing your risk of carrying more products than you can sell. If you have fewer of an item than you realized, you may be faced with orders you can鈥檛 fill and customers who don鈥檛 trust you to meet their needs. But if you order more of a product before you鈥檙e in danger of running out, you risk ending up with more stock than you can move, taking up valuable warehouse space and eventually needing to be thrown away.
Make informed predictions about the future: While it鈥檚 impossible to predict every change in the market, data about past supply and demand changes along with good analytics can help wholesalers identify patterns and adapt to seasonal fluctuations. A good inventory system tracks historical data as well as current inventory numbers, allowing wholesalers to identify short-term and long-term trends and plan for the future accordingly.
Reduce storage costs: Good inventory management practices help prevent overstock issues, allowing for more efficient use of warehouse space. With less surplus and obsolete inventory taking up room in the warehouse, businesses can increase the variety of products stored or decrease the amount of warehouse space they need to own or lease.
These are just a few of the reasons why proper wholesale inventory management is important to companies that wish to minimize costs and maximize profits, especially at a time when economies and businesses are still adjusting to changes that have come about or been accelerated by the global pandemic.
Ways to Improve Wholesale Industry Management
There are a number of ways to optimize inventory management. A good inventory management system (IMS) can help with many of them, but it isn鈥檛 the only way to improve efficiency in the warehouse. A well-designed workflow and calculated purchase points can make a significant difference to performance and financials.
Optimize Warehouse Layout and Workflow
The way a warehouse is laid out can have a substantial impact on operational efficiency and safety. Here are some tips for a well-planned warehouse:
- Keep the order picking area close to or inside of the storage area to allow for easy access to items
- Put the fastest-moving items closest to the picking areas
- Separate the packing and shipping area from the rest of the warehouse to avoid overlapping traffic flows
- Do a walkthrough of the entire warehouse before finalizing the layout, to ensure that what looks good on paper also works well in practice
It鈥檚 also important to develop procedures for warehouse staff to follow and ensure that everyone is properly trained. A set of well-documented processes can reduce damage and loss, improve inventory tracking, and decrease the risk of accidents.
Minimize On-Hand Inventory
It can be hard to find the right level of inventory to keep on-hand at any given time. Running out of stock unexpectedly is bad, but so is ending up with too much stock taking up valuable space and gathering dust. The longer a product sits in a warehouse, the more its value depreciates, even if it isn鈥檛 something with an explicit expiry date.
There are several ways to help minimize stock levels without running too much risk of shortages. One is to identify the products with the highest values and turnover rates, and prioritize them when it comes to keeping stock levels high. Items that have a track record of selling quickly are much less likely to sit around in the warehouse for too long. Other products that sell more slowly can be kept at lower stock levels and reordered less frequently without as much risk of needing to backorder them in the future.
It’s also worth investigating whether suppliers will take smaller order sizes, and whether such orders will still qualify for bulk discounts. It鈥檚 necessary to weigh the cost advantages of larger orders that may end up as dead stock in the warehouse against smaller orders that will cost more to purchase but take up less warehouse space.
Another valuable tool for optimizing inventory quantities is a reliable demand forecast. Forecasting uses data on demand trends, seasonal changes, and company performance to predict how much of a particular product will be needed at a particular time. Software programs can make this much easier to do and likely more accurate, but it鈥檚 possible to make such predictions manually as well. Demand forecasts will never predict every change in demand, but they can provide a more solid foundation for purchase planning and allow wholesalers to reduce the amount of inventory on hand when demand is likely to be low.
Use Cycle Counting for More Accurate Inventories
For many companies, doing an inventory count is a big, involved process that happens once a year and may put a temporary pause on normal business operations. Aside from being inconvenient, this process also means a business could be working with inaccurate inventory levels on record and not realize it for a long time.
Cycle counting offers an alternative that is less disruptive, more accurate, and prioritizes the most important stock. It involves dividing the company鈥檚 inventory into segments and creating a schedule wherein each segment is counted on a different day or different time of year. It also allows for different types of stock to be counted more or less frequently depending on priority 鈥� high-value, high-volume stock might be counted twice a year or even quarterly, while items with the lowest turnover could be counted just once a year.
Performing inventory counts in cycles is less disruptive to day-to-day operations as only a portion of stock is counted at once, and it provides greater control and accuracy by checking important stock more frequently without requiring a full inventory multiple times a year.
Set Reorder Points
A reorder point is a predetermined stock level that is used to decide when it鈥檚 time to purchase more of a particular product. A reorder point calculation should take into account the amount of time needed for new stock to arrive after ordering, the number of products expected to be sold by the wholesaler during that time, and the amount of safety stock desired. Ideally, each variation of each product should have its own unique reorder point. While these calculations can be done manually, it鈥檚 a much more labor-intensive process than it is to use an IMS, which can also send automatic notifications when reorder points are reached.
Use a Wholesale Inventory Management System if Possible
For young, small businesses, an IMS may feel unnecessary and too expensive. When working with a small range of goods, manual spreadsheet tracking is manageable, but it can quickly get out of hand. An IMS is an invaluable tool that reduces the amount of time spent working with spreadsheets and other documents, as well as the chances of errors and duplicate data entries. As mentioned above, it can make many other inventory management tactics faster and more accurate.
If an IMS is difficult to bring in at the moment, try to plan for future adoption. Manual tracking will become increasingly difficult to maintain as a business grows, so it鈥檚 important to have a plan to upgrade in the future when there鈥檚 a little more room in the budget. There are also free versions of IMS software available, so starting with one of those and then upgrading to a paid version later is also an option.
There are many advantages to using an IMS. Not only does it save substantial amounts of manual labor, it can also provide real-time visibility into stock levels and orders. Using this data, it can provide demand forecasts that help plan future stock orders, as well as insights into underperforming or high-demand items. This reduces the risk of item shortages and dead stock.
Build Relationships as Well as Profits
Proper wholesale inventory management can cut down on expenses and improve efficiencies in a variety of ways, but those aren鈥檛 the only benefits. Having an accurate picture of stock levels and knowing when to reorder also keeps customers happy, as there鈥檚 less likelihood of items being on backorder or completely unavailable. This can build trust and loyalty with customers and prevent them from looking for alternative suppliers.
Good inventory management can also improve relationships with manufacturers and suppliers: accurate demand forecasts mean knowing one鈥檚 purchase needs ahead of time, allowing manufacturers to plan in advance and potentially securing better terms from them because of this.
As the wholesale distribution industry becomes increasingly competitive and more manufacturers begin testing the direct-to-consumer model, it鈥檚 important to take advantage of every tool and opportunity. Increasing efficiency and keeping both customers and suppliers happy will help wholesalers stay afloat even in challenging circumstances.
