You already know that accurate inventory data matters. But if you need another reason, take a look at how data can help you understand order cycles to improve profitability.
If your business is typical, you have 45 to 90 percent of your capital tied up in inventory. Lowering this percentage through better inventory control, means that you have more cash to invest in new products and strategic initiatives. Inventory control can be improved by understanding your customers’ order cycles (the time between orders) and using that information to establish better inventory levels.
Let’s take a look at the impact that order cycles have on inventory control, and how understanding this impact can help you improve inventory levels.
Evaluate Product Demand
No two products sell exactly the same in a given period. Assessing the demand for your products can help you establish order cycles. When you know the times of highest demand for each product, you can ensure that you have enough on hand to meet orders. Conversely, you can also control stock levels during downtimes in the order cycle to prevent waste.
Negotiate Better Rates
Another way in which understanding order cycles can benefit your business is by examining the relationship between order cycles, inventory management, shipping, and cost of goods. If you know your order cycles, you may be able to negotiate better terms with your vendors to reduce cost of goods ahead of time. Not only will you have less items in your warehouse during slow times, but during business times you may be able to order in bulk with a negotiated price.
Balance the Cost Versus the Benefit
Consider whether or not inventory control efforts are worthwhile for all products in your warehouse. Some high-cost products may justify the effort of tight management, while others cost so little or take up so little space that spending time on ordering cycles and inventory management isn’t worthwhile. You must balance the costs versus the benefits on every aspect of inventory control.
Eliminate Out of Stock Messages
Sometimes, improved inventory control methods are helpful simply to reduce the number of “sorry, we’re out of stock” messages your customers see online or hear from their sales representatives. Nothing is so frustrating for your customers as learning that a part or product is out of stock just when they need it. “But you know that I always order that in January!” they may say, and they’re right. If you know your order cycles, you can have that item in stock and avoid too many frustrating “out of stock” messages.
Great Inventory Control Starts With Great Data
Great inventory control starts with great data. Scanco provides world-class inventory data collection systems that can set you on the path to greater profitability. Contact us for more information.