Successful warehousing and third-party logistics (3PL) operations know how to use inventory management software to streamline and optimize the inventory management process by forecasting demand, automating supply orders, storing product, tracking inventory, and fulfilling orders on demand. By understanding the role of inventory management software in their warehousing and fulfillment operations, businesses can manage inventory flow throughout their supply chain to avoid expensive overstocking and stockouts.
Understanding inventory management
Inventory management is the process of obtaining, tracking, and controlling inventory for an organization. Managed inventory may include raw materials, parts and components, or finished products. Effective inventory management balances supply and demand, creating efficient ordering, storing, and fulfillment policies to minimize overstocking costs while preventing stockouts.
What is 3PL inventory management?
3PL inventory management involves outsourcing stock tracking to a designated logistics provider. Since 3PL operations focus on fulfillment and inventory management services, they often have access to warehouse and distribution facilities, shipping fleets, and advanced warehouse management software that may be cost prohibitive for individual businesses.
Many ecommerce businesses and omnichannel retailers enjoy the benefits of outsourcing inventory management to 3PL, including efficient order fulfillment, timely delivery, and smooth operation scaling based on consumer demand. By partnering with a 3PL provider, companies can divert resources from inventory management operations to focus on product marketing, diversification, and business growth.
Key steps in the inventory management process
Understanding what the inventory management process is can help you determine the best way to manage your fulfillment or warehousing operation. There are typically five stages in the process of inventory management:
- Inventory planning and forecasting: Analysis of current stock levels, past sales, market trends, economic indicators, and other factors predicts customer demand and establishes optimal per-product inventory amounts. Today, 3PLs rely on AI to streamline this step.
- Ordering and stocking inventory: Based on demand forecasting and safety stock requirements, suppliers order the appropriate materials and stock them in accessible warehouse locations for picking, packing, and shipping.
- Inventory tracking and monitoring: Using IoT technology and automated tracking, modern warehouses get real-time information about stock levels and create notifications to alert users when a product starts to run low.
- Stock replenishment and order fulfillment: Automated order fulfillment and stock replenishment streamline pick, pack, ship, and restock operations by reducing the need for manual intervention.
- Inventory auditing and reporting: Periodic inventory audits ensure that stock numbers match actual inventory amounts. Audit reports go to warehouse management and other stakeholders, so they can make appropriate adjustments to inventory management policies and procedures.
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Best practices for effective inventory management
Today, effective inventory management is best handled through the use of advanced technology and automation.
Start by utilizing automated radio frequency identification (RFID) and barcode scanning with centralized cloud-based software to enhance inventory accuracy and fulfillment speed. Keep stock levels optimal by incorporating real-time tracking and AI-powered data analysis to predict demand. Automated restocking and fulfillment systems tied with data analytics help maintain inventory levels while reducing manual errors, stockouts, and overstocking.
Finally, schedule regular stock audits and cycle counting of small batches to ensure system accuracy. Frequent inventory audits help identify potential system errors that need correcting.
Common challenges in the inventory management process
Advanced inventory management software aims to address common challenges in the inventory management process, including the following.
Overstocking and stockouts
Overstocking occurs when a company purchases more products than it can sell, while stockouts happen when orders exhaust the supply of a product, making it unavailable to fulfill new orders.
Overstocking costs companies by keeping capital in excess inventory, which also increases storage and handling expenses. In addition to reducing immediate sales, stockouts harm the brand’s reputation and customer loyalty.
Inefficient inventory tracking
Companies with fractured or outdated inventory management processes have trouble keeping track of stock levels. When businesses have no real-time data or automation, fulfillment becomes bogged down by manual processes, human error, and operational bottlenecks.
Unchecked inventory tracking issues can lead to stockouts, overstocking, diminished customer satisfaction, and financial stress.
Managing inventory across multiple locations
Multi-warehouse operations must be able to track inventory across locations. Without integration between warehouse systems, inventory management becomes a nightmare of spreadsheets and incompatible reports that need time-consuming manual review.
The potential for human error is also significantly higher when systems remain separate. Time-consuming inventory assessments and human errors can quickly lead to overstocks, stockouts, and negative customer experiences.
A centralized, AI-supported inventory management system addresses these challenges by handling repetitive and analytical tasks with a much smaller rate of error. Quick analytics let warehouse managers receive prompt notification when a product is low, transfer orders to another warehouse with sufficient inventory, or move product from one warehouse to another to accommodate shifting demand.
How to improve your inventory management process
Optimize your inventory management process for 3PL, multi-warehouse companies, and other fulfillment operations by following these steps:
- Integrate cloud-based inventory management into all your warehouse systems. This allows you to manage your fulfillment operations from anywhere. Advanced inventory management software also provides much-needed automation and centralization for warehouse and fulfillment operations.
- Train and empower your team to use advanced inventory management in their workflow. By incorporating automated technology into your operations, your employees are better equipped to monitor inventory levels, move inventory between locations, and reorder products to avoid stockouts.
- Continuously evaluate and improve processes through inventory audits, cycle counts, real-time tracking, and automated reordering. Regularly perform system updates and upgrades to keep your inventory management program current and competitive.
Modern warehouse management systems like Logiwa incorporate automation and AI-powered optimization to facilitate reliable, efficient inventory management processes. Learn how 3PL providers and warehouse operations are improving profits with inventory management software. Contact us today to find out how our cloud-based 3PL software can streamline your inventory management process to improve scalability and prevent overstocks, stockouts, and other common fulfillment challenges.
FAQs on the inventory management process
What is the inventory management process?
What are the 5 key steps in the inventory management process?
- Inventory Planning and Forecasting: Analyzing past sales, market trends, and other data to predict future customer demand and set optimal inventory levels.
- Ordering and Stocking: Purchasing the necessary materials or products based on demand forecasts and storing them in accessible warehouse locations.
- Inventory Tracking and Monitoring: Using technologies like barcodes, RFID, or IoT devices to maintain real-time information on stock levels and locations.
- Stock Replenishment and Order Fulfillment: Automating the process of picking, packing, and shipping customer orders, as well as restocking products when they run low.
- Inventory Auditing and Reporting: Conducting regular physical inventory counts (like cycle counting) to ensure records match actual stock, and using reports to adjust policies.
Why is effective inventory management so important?
What are the current trends in inventory management?
- Cloud-Based WMS: Using centralized, cloud-based inventory management software to get real-time data and manage operations from anywhere.
- Advanced Automation: Implementing technologies like RFID, IoT tracking, and automated barcode scanning to increase accuracy and fulfillment speed.
- Outsourcing to 3PLs: A growing number of businesses, especially in ecommerce, are outsourcing inventory management to third-party logistics (3PL) providers who already have the advanced technology and fulfillment infrastructure.
