Why Does Inventory Management Matter?

If you’ve ever ordered something only to receive an out-of-stock notification a short while later, you probably already understand some of the reasons why inventory management is important. Organizing the items you have available to sell — plus the goods you need to produce your company’s products — will help you streamline your services and systems and avoid disappointing customers.

Here are a few additional reasons why inventory management and a purchase order management system are essential for your business:


1. Improves Merchandising and Marketing Decisions

As a business owner, you need to know what products are the most popular and which ones don’t perform as well. Inventory management software provides insight into which items are your top performers and which ones are duds. Using that information, you can make informed choices for your company’s marketing and merchandising efforts.

For example, if you’re a clothing retailer and a particular style of leggings is flying off the shelves — but another is proving to be much less popular — you can come up with ways to merchandise the less popular item to bring it to attention.

In a brick-and-mortar outlet, you might put the style that’s selling more slowly front and center. That could mean putting it in a window display or on a mannequin, which would be the first thing people see when they walk into the store. Online, you can include photos of models wearing the less-in-demand style on the front page of your store’s website.

Alternatively, you might decide to mark down the less popular item and stop ordering more of it. Meanwhile, you might throw your energy behind the bigger seller, showing people ways to style it and increasing your stocks of it in anticipation of ongoing sales.

2. Allows for Cloud-Based Inventory Tracking Across Multiple Outlets

Organizing inventory using the pen-and-paper method or a spreadsheet might work fine if you have a single location and a limited stock. But once your business starts expanding, you’re going to want to use a more robust system for tracking inventory and purchase orders. Ideally, the platform you use will track stock levels across all of your outlets, from online storefronts to brick-and-mortar locations.

Using a cloud-based inventory tracking system can be particularly beneficial if your company regularly pulls stock from multiple outlets. For example, you’re the manager of a clothing retailer with stores across the U.S., as well as a strong online presence. If you silo your inventory and keep everything separate, an online customer might not be able to purchase an item your company has in stock at a physical location.

But if you use cloud-based inventory management software, you can keep tabs on every single product in inventory in every area. If a customer buys a pair of leggings online, the leggings can ship from your company’s warehouse. If the leggings are sold out at the warehouse, but in stock at a brick-and-mortar store, the order can get diverted to the store, and this location can ship the leggings to the customer.

Tracking inventory across multiple outlets allows you to sell everything your company carries to the largest audience possible. It also reduces the chances of one outlet or location ending up with a stockpile of slow-selling products that are in demand in other areas.


3. Eliminates Human Error

Making mistakes is one of the things that makes people human. Seemingly small or simple mistakes within your company’s inventory levels, such as an extra “0” or a miscount, can be expensive. Human error can also take the form of mistyping a product’s name so that it ends up on a spreadsheet or inventory list multiple times. Or, someone might misplace products so that they are never received or get lost in the depths of a warehouse somewhere.

Inventory software reduces and eliminates the risk of human error in a few ways. Namely, it minimizes the risk of typos or miscounts. When an item is sold, the system deducts it from the available inventory level. When new items are received on a purchase order, the system auto-populates with the amount ordered.

An inventory system also recommends item names to a person who is creating a purchase order or adding goods to an inventory list, so that the same product doesn’t end up in the system more than once.

Another way inventory software reduces the chance of human error is that, unlike people, it doesn’t get tired. A person performing repetitive tasks such as data entry is bound to get fatigued. Their mind might wander, and suddenly, they’ve lost their place or put information in the wrong cell. People also get distracted, whether by noisy background environments or talkative co-workers, which can reduce their work’s accuracy.

4. Increases Customer Retention

Think about how you would feel if you regularly ordered from a company, only to get out-of-stock notifications later. Or, if you placed an order and something completely unrelated arrived at your warehouse. You might also feel a little unhappy with a business if you went to a brick-and-mortar location to make a purchase, only to find out it was sold out of everything you wanted.

When customers have difficulty finding the items they want to buy — or when they don’t receive the things they ordered — they are less likely to return to a company in the future. Your business might have to do damage control to keep dissatisfied customers happy and encourage them to return for future purchases.

For example, you might need to send out a new, accurate product and let the person hang on to the mis-shipped item. Or, you might send out coupons and discount codes when someone orders online and later receives an out-of-stock notification.

Use inventory software to keep accurate records of what you have on hand. Implement purchase order software to place orders with suppliers before your company runs out of a product. Taking these actions will help you minimize the risk of sellouts or order errors, keeping your customers happy. The happier people are with your company, the more likely they are to continue purchasing from you.

Even a small increase in the percentage of customers you retain is enough to lead to a significant profit increase. Boosting retention rates by 5% can increase profits by as much as 95%.


5. Minimizes Costs and Maximizes Sales and Profits

Your goal as a business is to sell as much as you can and turn the largest possible profit. Managing your inventory and orders helps you increase profits and sales. For example, you can use data from previous years to determine how much of a particular product to order during the holidays or over the summer.

Understanding how much of an item you’re likely to sell during a period will help you avoid ordering too much of it. This strategy will also help you prevent out-of-stock or backorder notices.

When you have unsold inventory languishing in a warehouse or on store shelves, it becomes challenging to bring in new products. You often face the decision of marking down the items that aren’t moving or removing them from the shelves or warehouses and taking the loss. Inventory software helps you avoid seasonal slumps with certain products by having you scale back orders during certain times of the year.

Inventory software can also boost sales by automatically reordering products for you during their peak sale season. When the winter holidays roll around, your software program can send out a PO for holiday-related items automatically. The same is true for products that are big sellers in the summer but sell less during the rest of the year.


6. Automates Manual Tasks

Many of the tasks associated with tracking inventory and completing POs are very repetitive. When you keep track of inventory by hand, you need to count items, input the information into a chart or spreadsheet and make sure the information is on the correct line. With POs, you must input the name of the product being ordered, its product number and the quantity. Performing manual, repetitive tasks can take a person a considerable amount of time.

But tasks that take humans minutes or hours to perform can be completed by a software program in seconds. When you use an inventory and purchase order system, you don’t have to worry about the little details or the repetitive tasks that might otherwise be missed or performed inaccurately. The software program will handle them for you and your team, in a fraction of the time.

7. Offers Flexibility

Cloud-based infrastructure has several advantages over on-site or server-based systems. Online purchase order systems are accessible from any computer with an internet connection and updated in real-time, giving you access to accurate sales data whenever and wherever you need it. Cloud-based software is also easier to maintain, with more predictable costs. Instead of investing in expensive hardware, you’ll enjoy a fixed monthly fee along with the ability to change your plan or scale upward without buying new equipment.


8. Gives You a Handle on Your Landed Costs

Even with cost fluctuations, with Finale’s sophisticated landed cost algorithm, you’ll always know how much you’re spending on each product. Understanding each product’s landed cost will allow you to gain insight into the gross margin of your sales. Finale will calculate the landed cost based on the price of the products themselves, plus any other expenses you directly incur to obtain them.

These charges can include everything from shipping to freight. Understanding your costs and how your suppliers are performing will give you the leverage you need to drive down spend as you grow. Finale Inventory enables you to track and categorize your landed costs by using four strategies, which include:

  • Order item subtotal
  • Order item quantity
  • Order item cubic meters (CBM)
  • Order item weight

Once you nail down your gross margin, you can calculate when you’ll break even for a better picture of your company’s profitability. When you know your landed cost, all other financial decisions come more easily.

How Finale Inventory Can Help You Grow Your Business

The team at Finale Inventory has been helping small to mid-sized Fortune 500 and e-commerce companies with their inventory management needs. We know the tangible advantages that inventory management can provide to a business and we are here to assist.

See the benefits of our products for yourself by signing up for a free trial version of our inventory purchase order software or scheduling a live demo today.