Inventory-based businesses have plenty of challenges to navigate, from coordinating delivery logistics to keeping customers satisfied. But whether you’re a retailer, manufacturer, or distributor, keeping the right balance of stock is an essential foundation for success. And instead of struggling with manual processes or basic inventory systems (which can lead to overstocking, stockouts, and inaccurate demand forecasts) leading businesses are deploying advanced inventory optimization software. Designed to streamline and improve the way businesses handle their stock, inventory optimization software leverages intelligent algorithms and advanced technologies to ensure inventory levels are always aligned with business needs.
In this post, we’ll discuss inventory optimization software, dive into its functionalities, and outline considerations to keep in mind when selecting software for your business.
What is Inventory Optimization, Exactly?
First, let’s start with the basics: what is inventory optimization, and why should inventory-based businesses care about it? Inventory optimization is the process of ensuring that your business has the right amount of stock on-hand at all times to meet demand, without overstocking or running out of products. It’s about striking a delicate balance between inventory levels and customer needs, while minimizing excess and waste. Consider the fact that $163 billion in inventory is thrown away annually due to oversupply and damage. At its core, inventory optimization aims to improve efficiency and profitability, by aligning inventory with real-time market conditions.
Inventory optimization can be accomplished through several different methods, which range in effectiveness and accuracy. For example, traditional inventory management often involves a manual approach, where businesses restock their products based solely on historical sales data or a fixed ordering schedule. While it might seem simple, this approach can lead to inefficiencies and inaccuracies in data. When this is the case, businesses might end up overstocking (which can then lead to excessive holding costs) or understocking (which can lead to lost sales opportunities).
Instead of manual processes or outdated systems, you can turn to inventory optimization software. It uses advanced algorithms, data analytics, and even machine learning to generate forecasts and inventory suggestions based on anticipated demand and real-time insights.
What is Inventory Optimization Software (and Why Should Your Business Use It?)
Today’s inventory optimization software is a next-generation technological solution for managing the inventory of a business. It’s a comprehensive, powerful tool which is designed to help businesses manage their stock more efficiently.
How exactly does inventory optimization software work? It uses advanced algorithms, data analytics, and demand forecasting techniques to analyze business data, anticipate customer demand, and make recommendations for optimal inventory ordering and levels.
This software is essential for effective, accurate inventory management because it does more than just help you meet stock levels: it allows you to strategically manage and fine-tune both your inventory and processes to consistently meet customer demand efficiently. And customers today have very high expectations for service and delivery. Research shows that customers prioritize fast and reliable deliveries when buying something, and in one survey, 85% of consumers said they would not buy from a business again if they had a poor delivery experience.
Notably, inventory optimization software takes a proactive approach to inventory management, focusing on what actions you should take now to ensure your inventory levels will be appropriate for meeting demand.
Notable Features to Look for in Inventory Optimization Software
When you’re choosing an inventory optimization software for your business, here are some key features you should look for:
Demand planning & forecasting tools
Demand planning and forecasting are two distinct, connected processes, which are facilitated by inventory optimization software. Demand forecasting is the process of anticipating future inventory needs, based on historical performance and other variables, such as sales, promotions, and even natural disasters. It uses advanced forecasting algorithms alongside different forecast hierarchies to give you accurate, up-to-date forecasts.
After forecasting comes demand planning. This process uses the outcomes of demand forecasts to create processes and strategic plans to ensure that inventory levels will be adequate. It’s the “action” step after a demand forecast is created. When you’re using inventory optimization software, you’ll end up with advanced, precise demand forecasts, and will have access to other tools that can help with demand planning.
Inventory analytics
Inventory analytics refers to the analysis of what’s happening inside your warehouse and on your shelves. Instead of leaving you with overwhelming amounts of raw data, inventory optimization software will give you instant insight into things you need to know, such as what you’re out of, what you have too much of, and how your new items are performing. This is where inventory optimization software shines: instead of wondering and asking questions about your inventory, you’ll have valuable takeaways in an instant.
Promotion planning
Inventory optimization software doesn’t just give you the “bare minimum” when it comes to insights and recommendations: it also offers advanced suggestions for dynamic situations, such as promotions. Today’s leading inventory optimization software includes promotion planning tools, which can help you plan and monitor sales and promotions, so you can maximize your outcomes.
Order management
Inventory optimization software streamlines order processing through automation, which can reduce manual errors and processing times. This efficiency allows businesses to fulfill customer orders more promptly, which can contribute to improved customer service.
Replenishment planning
Inventory optimization software also can assist with and automate the replenishment planning process. Automated replenishment strategies are a core feature of this software: it evaluates stock levels against predefined thresholds and triggers replenishment processes. This ensures optimal stock levels are maintained without the need for constant manual intervention. Depending on the software, you might be able to automatically generate orders, adjust automatically for real-world factors (such as order cycles and holidays), manage container loading, and monitor inventory balancing.
Benefits of Deploying Inventory Optimization Software
There are many potential benefits to using inventory optimization software in your organization, including
1. More accurate demand forecasts
Inventory optimization software can significantly improve the accuracy of demand forecasting, through advanced algorithms and real-time data analysis. Instead of manual processes which leave room for human error, this software is automatic and works in real-time, to ensure your forecasts and data are always up-to-date.
2. Better customer experience
The formula is simple: when you have the right amount of inventory, you’re able to better meet consumer demand, and ensure your customers have a positive experience with your business. Keep in mind that research shows that customers today expect real-time visibility on their orders, as well as speedy shipping. If your shipments are delayed due to stockouts, it can negatively impact the customer experience. But when your deliveries are on-time, and customers have real-time updates regarding their orders, they’re much more likely to be satisfied with their experience.
3. Reduced carrying costs
Inventory optimization software leads to better inventory stocking practices, leading to a reduction in the amount of excess inventory a business carries. This can be beneficial for logistics, but can also be financially strategic: research shows that by addressing issues of overstocking and understocking, businesses can reduce their inventory costs by 10%.
Ultimately, by maintaining optimal stock levels and preventing excess inventory, businesses can minimize carrying costs associated with unnecessary storage, insurance, and depreciation.
4. Improved fulfillment processes
Inventory optimization software streamlines order processing, reducing lead times and improving overall fulfillment efficiency. This means that businesses can consistently meet customer expectations by ensuring that products are available when needed, thereby enhancing customer satisfaction and loyalty.
5. Minimized risk of stockouts
Stockouts can be costly for an inventory-based business because they can lead to lost business and dissatisfied customers. However, inventory optimization software is an excellent way of minimizing and preventing stockouts. The software’s real-time tracking and demand forecasting capabilities enable businesses to proactively manage inventory levels, and alert you if stock levels are growing unfavorable.
Addressing stockouts can be excellent for your business’ finances, with research showing that using advanced forecasting tech can result in an 18% reduction in stockouts.
6. Cost savings and improved profitability
While we touched on it earlier, cost savings and improved profitability are significant benefits of using inventory optimization software. By optimizing inventory levels and reducing carrying costs, businesses can allocate resources more strategically, and reduce excess overhead costs.
How to Choose the Right Inventory Optimization Software
There are plenty of options out there when it comes to inventory optimization software. How can you decide which one will best meet your needs?
Here are some considerations to keep in mind when choosing inventory optimization software:
1. First consider your desired business outcomes and inventory goals
It’s important to begin by first clarifying what your business goals are with inventory optimization software, to pick a software that will support your business’ needs. Are you looking to improve your forecasts, reduce stockouts, or get better insights on your dashboard? Being precise with your desired benefits and how they tie into your business outcomes can help you select software that will help you achieve those goals.
2. Understand scalability and compatibility with current systems
When it comes to your inventory optimization software, you should be forward-thinking, and make sure it can grow as your business does. Evaluate the software’s scalability to ensure it can adapt to the evolving needs of your business, accommodating growth and increased data volumes. Also, consider how well the software integrates with existing systems, such as Enterprise Resource Planning (ERP) software, to ensure a seamless data flow and communication across different departments.
3. Take user-friendliness and ease of implication into account
Despite how advanced this software is, it should also be user-friendly and simple to use. Opt for software with an intuitive and clear interface to enhance user adoption and ensure your team is maximizing its effectiveness. Consider how data is presented, and if it will be accessible to all stakeholders. Also, assess the ease of implementation, considering factors such as setup time, training requirements, and the level of support provided by the software vendor.
4. Ask yourself: does it have accessibility to real-time data?
Real-time inventory data is essential for making informed decisions in the fast-moving global supply chain. Verify that the software you’re selecting can provide you with real-time data into things such as inventory levels and stock movements. This real-time data is essential for proactive inventory management and responding swiftly to market changes and demand fluctuations.
Embrace next-generation inventory optimization with StockIQ
Inventory optimization software is a game-changer for businesses: it can help you keep the right amount of inventory on hand, reduce excessive costs, and allow you to best meet customer needs. And if you’re ready to leverage the power of your inventory and enhance the way your business operates, StockIQ is here to help.
StockIQ is an intelligent supply chain planning suite that helps your business improve the way it manages inventory. You’ll have all of the insights you need at the tips of your fingers, so you can make strategic game-time decisions that help your business soar.
Ready to find out how StockIQ can help with your inventory optimization? Find out more by contacting us today or requesting a StockIQ demo.
