4 Ways an Inventory Management System Drives Profitability

Abby Jenkins, Product Marketing Manager

September 1, 2020

Nothing is more frustrating to a customer than placing an order online only to find out after the fact that it’s out of stock. Retailers can lose nearly half of intended purchases when customers encounter stockouts, according to the Harvard Business Review(opens in new tab). Those abandoned purchases translate into losses of about 4% of overall sales for a typical retailer.

Inventory management(opens in new tab) is more than knowing how much of something you have on the shelf; it is the tracking and organizing of goods from supplier, through the manufacturing process and into customers’ hands. 

Inadequate inventory management directly affects the customer experience. Without a real-time understanding of inventory on-hand, and its status, businesses are unable to effectively plan and execute on customer orders.

According to one report, 43% of small businesses(opens in new tab) either track inventory manually or don’t track it at all.

By relying on manual, paper-based inventory practices, businesses suffer from:

  • Inaccurate, time consuming inventory reporting
  • Inefficient inventory management, resulting in excess products in one location while out of stock in another
  • Inaccurate planning, resulting in increased discounting and write-offs of excess, slow-moving and obsolete inventory
  • Unnecessary handling that increases the cost of goods sold (COGS)
  • Stockouts that lead to lost sales from customers going to a competitor
  • Inability to track and trace the product from supplier to customer order

Managing Inventory Automatically with Software

Automating manual processes associated with managing inventory and having the insight to better forecast and utilize inventory improves inventory management across these four areas:

  1. Multi-location
    If you stock, sell and fulfill items in more than one location, it is essential to have visibility into stock levels across all locations to optimize inventory usage and get products to customers in the quickest and most profitable way. Inventory management software allows you to set pre-defined parameters such as whole order inventory availability and location, which sends orders to the location that has all items available, which eliminates multiple shipments for a single order and increased shipping charges. Inventory management software can also help maximize inventory sell through and minimize out of stocks.

    In fact, with NetSuite Inventory Management(opens in new tab), stores can be set up as a location, providing a true enterprise-wide view of inventory. With visibility into inventory across all locations, you can proactively monitor stock levels and sell through, transferring inventory between locations as necessary to ensure inventory availability and minimize obsolete inventory. Sales associates are empowered to save the sale in stockout situations with access to enterprise-wide inventory availability, enabling them to transfer, hold or ship items directly to the customer.

    Businesses can also minimize the amount of inventory required to be on hand by executing a cross-channel fulfillment strategy, easily fulfilling online orders from store. With NetSuite, multi-location inventory management also allows you to analyze and understand seasonal and location specific trends.
  1. Replenishment
    Customer satisfaction and profitability require maintaining the right amount of inventory to fulfill anticipated orders while keeping excess stock to a minimum. Businesses must account for fluctuations in demand, seasonality, supply chain logistics and a product’s natural lifecycle to ensure sufficient stock on hand. NetSuite inventory management provides demand-based replenishment by using historical and seasonal-based sales, average lead time and number of days’ supply to stock data to dynamically manage item reorder points and maintain preferred stock levels. It generates tasks, alerts automatically and sends the tasks to the purchase manager for execution.
  1. Cycle Counting
    Regular cycle counting is an important means of establishing checks and balances, ensuring items accounted for in the inventory system are physically on the shelf. Integrating cycle counting(opens in new tab) as an ongoing periodic task reduces required safety stock, lowers overhead costs, makes physical counts(opens in new tab) less painful and is an important anti-theft tactic. NetSuite inventory management allows you to categorize inventory based on the volume of transactions and/or value. You can then schedule regular periodic counts of on-hand item quantities and auto assign count tasks to floor staff to help maintain inventory accuracy. By implementing periodic cycle counts for select SKUs instead of performing a full cycle count, the count can be integrated into everyday tasks, minimizing the disruption of warehouse operations. If items are stored in multiple locations, using bins in the warehouse greatly eases the counting process and accuracy as you know exactly which bins to go to perform the counts, instead of walking around looking for the items.
  1. Traceability
    Companies need the ability to trace products through their entire lifecycle. By using lot and serial tracing, businesses are able to both backward trace (linking finished goods to raw materials and suppliers) and forward trace (linking finished goods to purchase order and customer records). Lot numbers give you the ability to track the quantity of items and the specific cost for each group of products based on when they were produced. On the lot number record, you can identify an expiration date and enter notes about the lot. Serial tracking lets you choose a specific serial numbered item to fulfill or receive an order. Together, lot and serial numbers allow you to define fulfillment strategies (such as FEFO - first expiring, first out) to minimize waste and ensure inventory is used in the most efficient way. Bin management and defining your merchandise hierarchy also help with traceability. Using matrix items enables you to track items by options such as size and color. An item matrix consists of a parent item and subitems. Updates made to the parent item can be automatically applied to the subitems – greatly simplifying SKU management. With an item matrix, each subitem is tracked separately.

NetSuite Inventory Management

Companies that ditch the pen and paper for NetSuite’s Inventory Management solution gain a better understanding of inventory and how it’s allocated, businesses can confidently rely on a demand-based production model, keep less inventory on hand and decrease overhead costs associated with storage, ultimately increasing the bottom line.

Learn more about how to pick the right inventory management system(opens in new tab) for your business.

NetSuite has packaged the experience gained from tens of thousands of worldwide deployments over two decades into a set of leading practices that pave a clear path to success and are proven to deliver rapid business value. With NetSuite, you go live in a predictable timeframe — smart, stepped implementations begin with sales and span the entire customer lifecycle, so there's continuity from sales to services to support.