How to Increase Profits By Optimizing Inventory Replenishment

Inventory ManagementConsistently maintaining optimal inventory levels makes your business more efficient

Optimizing inventory replenishment makes your supply chain more productive and your business more profitable. The only thing worse than having thousands of dollars tied up in inventory that’s months away from turning over is not being able to fulfill customer orders.

You want to avoid both of these problems ─ and you can by taking a strategic approach to inventory replenishment.

Know When Inventory Needs to Be Replenished

Know when inventory needs to be replaced

It sounds simple, right? Just wait until your inventory is low and order more. Well, not quite.

Smart inventory management requires you to anticipate when your inventory will be low ─ in advance. This prevents you from being out of stock when a customer places an order, and it also ensures you aren’t spending unnecessary capital that could be invested elsewhere.

How to predict when inventory needs replenishing:

  • Track lead times ─ the time it takes between ordering and receiving new inventory
  • Identify trends in demand and order frequency
  • Prepare for holidays and busy/slow seasons

Both, having too much inventory or not enough inventory can negatively impact growth and, ultimately, profits. Ideally, you want to get your timing just right.

Know How Much Inventory Needs Replenishing

Just as you want to get your timing down for inventory replenishment, you also need to accurately predict the quantity of inventory needed. The same principle applies ─ money spent on excess inventory is money not invested in other areas of your business that could directly increase profits.

Past performance is an effective way of predicting future sales. Use historical sales data to create sales forecasts and update them regularly.

An important metric to track is the product life cycle ─ the launch, growth, maturity, and decline of a product over the course of its existence. Product life cycle management allows you to maximize the profitability of your products at each stage in the cycle.

Track Vendor PerformanceTrack Vendor Performance

It’s important to research, compare, and take great consideration in which businesses you will rely on for inventory replenishment. However, the vetting process isn’t over when you sign your contract or formally start your business relationship.

Unfortunately, it’s inevitable that one or more of your vendors will decline in quality over time or will be unable to match your inventory needs as your company scales. There are a variety of factors that might cause this, such as changes in management, macroeconomic conditions, innovation in technology, among many others.

Having a system in place that automatically tracks lead times and inventory forecasting is ideal for inventory management, but it also provides historical performance data for each of the trading partners in your supply chain. It’s always better to spot negative trends early and address them to prevent serious problems with inventory replenishment.

Multi-Warehouse Distribution

For most small businesses, one central warehouse will be enough to meet distribution demands cost-effectively. However, as your business expands, you will reach a point where multi-warehouse distribution is not only more cost-effective but is necessary to keep up with demand.

The advantages of multi-warehouse distribution:

  • Fast delivery to any location
  • Decreased shipping costs
  • Multiple inventories
  • Easier access

With a multi-warehouse operation, you have the ability to replenish inventory in one warehouse with excess stock from another. It’s much easier to maintain optimal inventory levels and consistent service for your customers ─ which make your business more profitable.

EDI Optimizes Inventory ManagementHow EDI Optimizes Inventory Management

EDI removes the hassles of inventory management and completely automates your inventory replenishment process.

An EDI service allows you to:

  • Track lead times and adjust replenishment schedules
  • Monitor inventory levels and automate replenishment orders
  • Measure performance of all vendors in your EDI network
  • Sync multi-warehouse distribution data in real-time

In addition to the inventory management benefits, EDI also makes you more profitable by reducing labor costs, and improving the speed and accuracy of data exchanged throughout your supply chain.

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