Businesses that provide a service, such as HVAC companies, electricians and plumbers, may not have a physical product they sell, but they all have inventory. This inventory is made up of materials that are part of a service but they're not directly purchased by the customer. These materials need to be accounted for in the warehouse, when they are moved onto service trucks and then when they are used for a client job.
However, many services companies do not have a person dedicated to managing inventory and may not have someone dedicated to purchasing that inventory either. As a result, many businesses do not have corresponding processes in place for purchasing or managing inventory, instead relying on an ad hoc, as needed approach. This can be costly and impact the business’s profitability. An HVAC company’s customer doesn’t want to hear their project was delayed because the company didn’t have the necessary parts.
Challenges of Ad Hoc Inventory Management
Managing inventory manually using pen and paper or spreadsheets is time consuming and error prone. Worse, some businesses aren’t tracking it at all. Here are five fundamental challenges when managing inventory manually:
Lack of visibility and control. Without a process in place to manage inventory, there is no record of what items come in, where they are located or how they are used, making it difficult to predict ongoing inventory needs.
Inaccurate demand planning. Without visibility into how much of an item you’ve historically used, buyers are unable to predict how much they will need.
Excess and stockouts. Inventory is a liability on the balance sheet and, without proper planning, cash can be tied up in having that inventory sit on a shelf when it could be better used in other parts of the business. On the other hand, not having enough inventory available can impact daily operations, requiring emergency repurchases, potentially expediated shipping and impacting the customer experience.
Inability to locate items. Many times, the items required are actually in stock, but they just cannot be located. This is especially true if there is not a designated storage location for items, or if items are stored across multiple locations.
Disconnected inventory and accounting systems. If you’re managing your inventory in one system and your accounting in a different one, you’re creating unnecessary manual work, forcing someone to input the inventory changes into the accounting system. More importantly, the accounting records will never be accurate because inventory is constantly moving and changes will not be reflected in real-time.
Benefits of Automating Inventory Management
Automating the inventory management process allows businesses to understand what items are being used, with what frequency and how they are being used. With this information, they are equipped to make more informed decisions about what is needed, and when, allowing them to optimize their inventory levels and minimize their cash obligation. NetSuite inventory management helps services companies address these fundamental challenges by:
Establishing a system of record. NetSuite’s item master allows you to store a product’s information, in its entirety, in a single place, including location, quantity, cost and more, reducing the time and effort of making product updates in multiple places.
Improving inventory control. Enhance inventory visibility with tracking to manage every stage of the lifecycle and control costs. With added inventory controls, businesses can effectively track inventory usage and shrinkage and better manage their inventory costs.
Improving inventory visibility. With historical data, average lead time and number of inventory days’ of supply businesses can dynamically manage item reorder points and maintain preferred stock levels.
Creating accounting efficiencies. With a single, unified system, as inventory updates are made in the inventory record, they’re reflected in real time in the accounting record, saving time for finance.
Just because your business doesn’t sell a physical product doesn’t mean you don’t have inventory. Effectively managing that inventory improves profitability and ensures products are available when and where you need them, so you can focus on what you do best.
Learn more about how NetSuite Inventory Management helps businesses eliminate manual processes and take control of their inventory in the webinar Managing Inventory for Services Companies.