By Samuel Greengard
Yet improving inventory management in a small or midsize enterprise (SME) can be a formidable challenge—and something that touches every corner of a business. Not only is it necessary to track pricing for raw materials and components and understand supply and demand variables, there’s also a need to address constantly changing global availability and pricing—along with market conditions and sales demand.
Developing an optimal digital inventory management system typically requires a focus on several key factors: understanding market conditions, establishing a trusted group of suppliers and vendors, and negotiating pricing. It also calls for the creation of internal systems, technologies, and tools that deliver insights to help shape global inventory management.
In recent years, global supply chains have introduced both opportunities and challenges to inventory management for small businesses. The World Trade Organization (WTO) reports that trade volumes have grown at an annual rate of 4.8 percent since 1990.1 However, there also are fluctuations in currencies, markets, and pricing, and trade disruptions and quality-control issues that can create disruption.
Macro-economic factors represent only part of the challenge, however. In order to improve international inventory management, a company often must gain visibility into real-time trends and events within its entire enterprise. The task typically includes procurement, manufacturing, operations, marketing, and sales. Further, it might require new enterprise resource planning (ERP), supply chain management (SCM), and other enterprise software and tools.
Ultimately, most businesses must fully link departments, enterprise systems, and various outside data sources in order to construct a best-practice view into digital inventory management. However, a 2017 survey found that 43 percent of small businesses do not track their inventory or use a manual process to do so. What’s more, nearly one-quarter (24 percent) do not have a software system in place for managing processes.2
Global inventory management starts with a more robust and resilient framework for managing conditions and inventory. There are four primary factors that a business must address in order to adopt a best-practice framework.
Several benefits can accrue from a best-practice international inventory management approach. These include lower costs, higher profit margins, and the ability to take advantage of changing conditions and market disruptions.6 In addition, an agile and flexible just-in-time (JIT) framework promotes lean inventory, which can generate additional gains.7 A Bain & Company study found that companies can wring out gains of 20 to 50 percent in inventory levels through a more advanced analytical approach.8
Bain & Company noted that a key to success is using statistical formulas that incorporate the accuracy of sales forecasts, required production lead times, manufacturing schedule adherence, and service-level data for each SKU. Other best practices include updating calculations at least every three to six months to ensure that decisions are based on the most accurate information available. This best practice approach to inventory management for small businesses, the consulting firm noted, is best achieved with cross-functional teams and a focus on continuous process improvement.
It’s clear that SMEs face unique and sometimes daunting challenges surrounding international inventory management and developing a robust digital inventory management system. Yet, with the right combination of strategic oversight and software, it’s possible to trim costs, improve delivery windows, and react faster—as conditions change in a marketplace or a supply chain. Organizations that address global inventory management effectively can establish a competitive advantage. And the right digital inventory management system can deliver predictability in a highly unpredictable world.
Samuel Greengard is a veteran journalist who has contributed to many business and technology publications. He is also the author of two books: The Internet of Things (MIT Press, 2015) and the AARP Crash Course in Finding the Work You Love: The Essential Guide to Reinventing Your Life (Sterling, 2008).
1. “Strong trade growth in 2018 rests on policy choices,” World Trade Organization; https://www.wto.org/english/news_e/pres18_e/pr820_e.htm
2. State of Small Business Report, Wasp Barcode Technologies; http://www.waspbarcode.com/small-business-report
3. “Ten ways to improve inventory management,” Bain & Company; https://www.bain.com/insights/ten-ways-to-improve-your-inventory-management-wsj/
4. “ABC Analysis,” BusinessDictionary; http://www.businessdictionary.com/definition/ABC-analysis.html
5. “Ten ways to improve inventory management,” Bain & Company; https://www.bain.com/insights/ten-ways-to-improve-your-inventory-management-wsj/
6. “5 Steps to Live Life Simpler, Faster and Fuller with an Inventory Management System,” EmergeBlog; https://emergeapp.net/sales/benefits-inventory-management-software/
7. “What are the main benefits of a JIT (just in time) production strategy?,” Investopedia; https://www.investopedia.com/ask/answers/040215/what-are-main-benefits-jit-just-time-production-strategy.asp
8. “Ten ways to improve inventory management,” Bain & Company; https://www.bain.com/insights/ten-ways-to-improve-your-inventory-management-wsj/