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What is Supply Chain Inventory Management?

packages ready for distribution through the supply chain

Effective inventory management within the supply chain is crucial for businesses as it encompasses the supervision and control of inventory throughout the entire supply chain process. This includes the management of inventory received from vendors and suppliers, its transformation into finished products, and its distribution to retailers or end-users. Implementing strong inventory management systems and adopting smart inventory management strategies are essential for accurately tracking and monitoring inventory throughout the supply chain. In this article, we’ll dive into what you need to know to establish your own inventory management strategy and best practices to track your products throughout the supply chain.

Why is Inventory Management Important?

Lead time and inventory control play crucial roles in effective inventory management within the supply chain. Lead time refers to the duration of time between placing an order for raw materials and receiving them. By accurately estimating lead times, businesses can ensure a continuous flow of materials for the production process. Without timely arrivals of raw materials, it becomes impossible to create the goods required to fulfill customer orders or stock retail stores.

Inventory control entails monitoring and optimizing the quantity of products at various stages, from raw materials to finished goods ready for shipment. By carefully tracking the inventory levels in each stage, businesses can make informed decisions about increasing or decreasing inventory as needed. This helps to avoid stockouts or overstocking situations, ensuring an optimal balance between supply and demand.

inventory manager performing an inventory count

Types of Inventory in the Supply Chain

Supply chain management encompasses various aspects of inventory management, including the handling of raw materials, work-in-progress, and finished goods. Implementing best practices in inventory management systems is crucial for companies to effectively manage these inventory types and optimize their supply chain operations.

Raw materials inventory

Raw materials inventory is a critical component in the supply chain, as it consists of the items sourced from vendors and suppliers, which are essential for the creation of finished products. Maintaining an adequate supply of raw materials is vital to prevent shortages and ensure a smooth production process. By accurately monitoring and forecasting raw materials inventory, companies can avoid disruptions and meet customer demand.

Work-in-progress inventory

Work-in-progress inventory represents products that are currently in the production process. It is essential to have visibility into this stage to plan for incoming and outgoing needs effectively. Knowing the progress of work-in-progress inventory enables companies to make informed decisions regarding resource allocation, scheduling, and managing production lead times. This information helps optimize the overall production flow and enhances operational efficiency.

Finished goods inventory

Finished goods inventory consists of completed products that are ready for distribution to customers. Whether selling directly to consumers or shipping in bulk to retail stores, having accurate information about available finished goods and their expected shipping dates is paramount. This allows companies to effectively manage customer orders, prevent stockouts, and maintain high levels of customer satisfaction.

supply chain inventory management processes

Challenges of Supply Chain Inventory Management

Inventory management systems play a pivotal role in addressing the challenges of supply chain inventory management. It can be a challenging area, especially dealing with a high volume of goods or when the process of transitioning from raw materials to finished products is time-consuming or complex. When dealing with a large volume of goods and complex production processes, efficient inventory control becomes crucial.

Managing demand variability and uncertainty

One significant challenge is managing demand variability and uncertainty. Fluctuations in customer demand can impact inventory levels, requiring businesses to strike a delicate balance between avoiding excess inventory and preventing shortages that can lead to customer dissatisfaction. Inventory management systems help in demand forecasting, enabling companies to optimize inventory levels and meet customer expectations.

Maintaining product quality and shelf life

Another challenge is maintaining product quality and shelf life. Some products have a limited shelf life, and ensuring their quality throughout the supply chain is critical. Staying up-to-date on industry trends and technological advancements is necessary, particularly when producing products with shorter lifecycles. Inventory management systems aid in tracking product expiration dates, facilitating proper rotation, and minimizing the risk of obsolescence.

Balancing inventory costs and customer service levels

Balancing inventory costs with customer service levels is a key consideration. Inventory carries significant costs, including storage, handling, and potential write-offs. However, cutting costs should not compromise customer satisfaction. With robust inventory management systems, businesses can optimize inventory levels, reduce carrying costs, and improve customer service by ensuring product availability when needed.

Navigating global supply chain disruptions

Sometimes, even if you do everything right, you can still end up with an inventory problem. Global disruptions to the supply chain, for example, natural disasters or geopolitical issues, can disrupt the flow of materials and impact inventory availability. To mitigate the risk, businesses may resort to ordering larger quantities of raw materials. However, this approach carries the potential risk of excess inventory if the disruptions selectively affect specific materials. Inventory management systems provide real-time visibility into inventory levels, facilitating proactive measures to mitigate disruptions and minimize their impact.

warehouse facility full of products

How to Improve Inventory Management

Improving supply chain inventory management through effective inventory control and order fulfillment are crucial goals for any size company. Whether you’re a small business operating one facility or a large corporation managing multiple warehouses, optimizing your supply chain is essential for maintaining momentum and driving growth.

Conduct a thorough inventory analysis

If you’re wondering when is the right time to conduct a thorough inventory analysis, it’s now. This is the perfect time to assess the inventory you have on site. Without knowing your current status, it's difficult to make informed decisions about what comes next. By conducting an accurate and thorough count of everything you currently have, you'll gain the clarity needed to determine the best way forward.

Adopt demand-driven strategies

Using strategies that are driven by customer demand is a great way to reduce inventory issues. Not only can these strategies help you keep enough inventory on hand to meet sudden demand spikes, but they can also protect you from having too much inventory sitting around for a long period of time. The most common demand-driven strategies are:

  • Customer collaboration
  • Demand forecasting
  • Inventory optimization
  • Supplier collaboration
  • Lean manufacturing
  • Real-time visibility

The adoption of any one of these strategies can help, and you can couple more than one strategy together to find what works best for your company. Every business is unique, even though they all have their similarities, so finding the right strategy can take some time and careful consideration.

Implement inventory management software

Using software for inventory management in supply chain operations can significantly enhance efficiency. With software, manual tracking of inventory becomes unnecessary. This not only alleviates stress but also minimizes the risk of human errors, ensuring greater accuracy in maintaining inventory numbers.

Efficient stock replenishment

To keep your employees productive and customers satisfied, it's important to replenish your stock of raw materials efficiently. Delayed orders or imbalanced material distribution can lead to significant issues. By implementing efficient stock replenishment practices, you can provide your employees with everything they need while minimizing excess and waste.

Adopt inventory management techniques

Consider adopting specific inventory management techniques tailored to your business. Some commonly used techniques include:

  • Just-in-Time (JIT) inventory management
  • Vendor-managed inventory (VMI)
  • Economic Order Quantity (EOQ)
  • Drop-shipping

The best option for your business depends on factors such as your product offerings, customer and vendor interactions, and other relevant considerations. Find the approach that offers the most significant benefits to your company.

Measure and monitor performance

Even if your supply chain and inventory levels appear smooth, it is necessary to continually measure and monitor your company's performance in these areas. Several metrics can be utilized, including:

  • Inventory turnover ratio
  • Days sales of inventory (DSI)
  • Customer service level
  • Carrying cost of inventory
  • Gross margin return on inventory investment (GMROII)

Assessing multiple metrics is more valuable than focusing on one or two. It ensures overall performance excellence and helps identify areas where you can enhance your customer offerings.

inventory manager loading a pallet of products onto a cargo truck

Benefits of Effective Supply Chain Inventory Management

Effective supply chain inventory management offers numerous benefits for your company, particularly regarding site management, balance sheet optimization, and the seamless flow of goods. Understanding the significance of managing your supply chain inventory can drive improvements in these areas.

Improved cash flow and customer service

You can boost customer satisfaction and increase repeat purchases by effectively managing your supply chain inventory. Happy customers are less likely to seek refunds, resulting in improved cash flow. Efficient inventory management also streamlines customer service, leading to an overall better customer experience.

Reduced inventory costs

One of the major advantages of effective supply chain inventory management is the reduction in inventory costs. With a clear understanding of your inventory levels and needs, you can optimize your purchasing decisions and align them with your company's and customers' needs. This minimizes the risk of accumulating excess raw materials or finished inventory that remains unsold.

Improved forecasting accuracy

To effectively respond to consumer demand, it is crucial to have accurate forecasts. While it is impossible to plan for every possible scenario, focusing on the most common and expected potential issues is key. By managing your supply chain inventory efficiently, you can develop a strong understanding of consumer demand trends and anticipate any forthcoming factors that may impact it, allowing you the opportunity to enact the best course of action.

Build stronger relationships with suppliers

Efficient inventory management facilitates building stronger relationships with your suppliers. By planning ahead and understanding your inventory needs, you can place precise orders and establish solid connections with the suppliers providing your raw materials. These relationships enable smoother transactions and enhance collaboration, ultimately benefiting your business.

two business partners shaking hands

Improve Your Supply Chain Inventory Management Today

Improving your supply chain inventory management is a strategic move that can propel your business to new heights. Don't wait any longer to optimize your supply chain processes. Take the first step today by partnering with a reputable company that delivers reliable inventory management solutions. With their expertise and support, you can confidently navigate the complexities of inventory management and elevate your business to new levels of success.

At Paramount Global, we understand the important role that inventory management plays within the supply chain. Our friendly and dedicated team is fully committed to providing comprehensive packaging and inventory management solutions tailored to your unique requirements. Contact us today to explore the myriad ways in which we can become your trusted partner throughout the entire supply chain process. Together, we can drive operational excellence and fuel your business growth.

established in 1976

For over forty years, Paramount has been delivering perfectly integrated packaging and supply chain solutions.