What Does Inventory Optimization Software Actually Do?

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Managing inventory effectively is an ongoing challenge faced by businesses across industries, particularly in the supply chain. Striking the right balance between having enough stock to meet customer demand (while avoiding the cost and burden of excess inventory) is a delicate undertaking. The consequences of mismanaging inventory are significant, ranging from financial implications to customer dissatisfaction. To best navigate inventory and ensure the proper amount is always on hand, businesses are deploying advanced inventory optimization software. 

While there are many different ways to handle inventory management, the most efficient, accurate, and powerful is typically through inventory optimization software. 

In this post, we’ll demystify inventory optimization software, dive into its functionalities, and explore considerations to keep in mind when selecting software.

What is Inventory Optimization Software, and Why Does It Matter?

The modern inventory-based business is operating in the face of unprecedented challenges and changing consumer needs. Customers today have very high expectations: research shows that customers prioritize fast/reliable delivery and a good return policy when purchasing something. Additionally, 85% of consumers in one survey said they would not purchase from a business again if they experienced a poor delivery experience. 

It’s not just customer demands keeping inventory-based businesses on their toes. The digital nature of the modern market means that shipping demands can quickly change, making it even more essential to properly manage inventory. 

Inventory optimization software does what the name implies. It’s a technological solution for managing the inventory of a business. 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. 

Inventory optimization software matters because it allows leaders to make data-driven decisions about inventory, resulting in the right quantity of inventory to fill orders and minimal excess stock. It uses advanced algorithms and data analytics to dynamically predict stock needs and to adjust in real-time while taking market trends and other variables into account. It is in contrast to traditional inventory management practices, which can rely on manual and fixed methods, leading to errors, lags, and inefficient processes. 

Key Features of Inventory Optimization Software

While the exact specifications of inventory optimization software vary depending on what software provider you go with, there are some standard features. 

These include:

  • Demand planning & forecasting tools: Demand planning and forecasting are two distinct processes that are connected, and 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. Demand forecasting 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. Inventory optimization tools 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.
  • Order management: Inventory optimization software streamlines order processing through automation, reducing manual errors and processing times. This efficiency allows businesses to fulfill customer orders more promptly, which can contribute to higher customer satisfaction. 
  • Replenishment planning:  Inventory optimization software also can assist with and automate the replenishment planning process. Automated replenishment strategies are a core feature, as the software 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 Inventory Optimization Software

There are many potential benefits to using inventory optimization software in your organization, including:

1. Improved accuracy in demand forecasting

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. 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. Data shows that oversupply leads to billions of dollars in wasted inventory in America every year. Additionally, further 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 storage, insurance, and depreciation.

3. Fulfillment efficiency

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.

4. 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 also be excellent for your business’ finances, with research showing that using advanced forecasting tech can result in an 18% reduction in stockouts. 

5. 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. 

Considerations When Choosing 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. Business outcomes and inventory goals

Firstly, it’s important to understand what your business goals are with inventory optimization software and to pick one that aligns with those needs. Are you looking to improve your forecasts, further 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. Scalability and compatibility with current systems

Your software should be able to support your business as it grows. 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 facilitate seamless data flow and communication across different departments.

3. User-friendliness and ease of implication

When it comes to your inventory optimization software, you don’t want to spend time digging for answers. Opt for software with an intuitive and user-friendly interface to enhance user adoption and reduce the learning curve for your team. How is data presented, and will it 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. Real-time data accessibility

Real-time inventory data is essential for making informed decisions. Verify that the software you’re selecting can provide real-time data accessibility and that it will provide you with timely, accurate information. This real-time data is essential for proactive inventory management and responding swiftly to market changes.

StockIQ: Here to help you master inventory optimization

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 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. 

We’re an intelligent supply chain planning suite that helps you improve your inventory efficiency through improved visibility. 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? Contact us today. 

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