Inventory management tools are the key to unlocking efficiency, accuracy, and profitability in your SME business. They help you gain seamless control over your inventory and empower you to meet customer demands with ease. In today's business ecosystem, dynamic market forces determine the price of the product. As an SME business owner, you are likely to have little control over the costs of raw materials and other inputs required for the production of finished goods. Hence, the challenge before you usually, is to squeeze a profit out of the narrow gap between your selling and procurement prices. Moreover, considering the costs of operations, manufacturing costs, and other charges, managing your business efficiently and setting it up for success can be an uphill task. Although SME entrepreneurs will always maintain their optimism and attempt to manage these rising costs, one significant drain, which can't be avoided, is inventory costs.
To help you reduce and manage rising inventory costs, we have explained all about inventory management analysis tools and inventory management best practices. Read to know more.
Why Inventory Management?
Many manufacturing companies give most of their attention to production and quality control. Their sales counterparts intensely focus on securing orders at the best possible prices.
In this scenario, inventory management systems are often overlooked. And despite the order delays caused by ineffective inventory management, not enough attention is given to adopting digitized tools and techniques for inventory management. Businesses have become highly complex, making it further challenging to operate things manually. And with the development of external Enterprise Resource Planning (ERP) software and systems, the decision to implement suitable software in-house is a foregone conclusion. Therefore, you should choose an effective inventory management software that understands the industry you operate in, suits your specific business and cost needs, and adapts to your working environment. Fortunately, more industries are now becoming aware that the best inventory management software supported with effective tools of inventory management can truly transform their SME manufacturing business. Let's take a look at some of the best tools for inventory management that you can leverage to take your business to greater heights.
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Best Inventory Management Tools and Techniques
It is important to understand which inventory management tool is aligned with your business and will help you in achieving your business goals. You can gain a competitive advantage early on if you have the best inventory management strategy supported by well-built, expert software for managing your inventory. Let us review 5 key tools and techniques used for inventory management:
1. ABC Analysis
ABC analysis is an age-old but evergreen concept that has seen a lot of developments, based on the assessment of the value of materials consumed. This analysis covers the concept of VED (Vital, Essential, Desirable) risk factors and the consumption speed of the business. A perfect inventory management system must consider all these factors. Generally, an ABC analysis reflects A, B, and C as three different categories of inventory items. The “A” category consists of items of the highest value, accounting for 20% of your materials, and contributing to 80% of the costs. "B" and "C" would be between 15% and 5%.
Thus, you pay attention to managing the "A" list fully and ensure that the B and C categories are maintained at safe levels. Such a value engineering analysis can derive significant cost savings and improvements.
2. FIFO, LIFO, and Average Pricing
First-In, First-Out (FIFO), Last-In, First-Out (LIFO), and average cost or average pricing, are the most commonly used inventory management tools and techniques. They help to determine the cost of goods sold within inventory management. Different businesses rely on different pricing techniques based on their base requirements.
With the right pricing and costing strategy, you can ensure that your inventory is functioning at an optimum level, leading to accurate inventory analysis and bookkeeping.
3. Traceability
Data traceability is a key business requirement and advantage, specifically for inventory management as inventory directly ties with resource planning and costs. Small and large businesses have greatly benefitted in product development and rectification only thanks to the usage of traceability tools. In many industries, it is now mandatory to ensure the traceability of products sold. Traceability is a tool for inventory management that minimizes risk and improves customer satisfaction. Hence, always choose inventory software that includes an expert traceability feature.
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4. Cycle Monitoring
Cycle monitoring is a way of monitoring inventory continuously. Through this method, the movement of materials is tracked, right from the time they are issued till they reach the warehouse as finished goods. This will alert you if an expensive material is held up in the line for too long, or if the non-availability of any critical material is causing a bottleneck. Crucial "A" category materials will be monitored at a higher frequency as any delays in their movement could cause a greater impact on operations. By placing varying emphasis on different materials based on their size and influence, you can ensure that everything is moving clearly and smoothly. Any deviations are identified earlier so that root causes can be managed better.
5. Data Identification with Barcoding
To make the inventory process error-free, use an integrated information processing system where every material is coded and can be identified easily by the system. For this purpose, a feature like a barcode reader can come in very handy for SME businesses. It helps to identify the product while synchronizing data in the ERP.
The status overview of any raw material, semi-finished goods, or finished goods is available instantly to the department managers at one glance. This tool for inventory management also saves time consumed in manual data entry and eliminates errors.
Now that we know the most popular inventory management tools and techniques, let's understand more about inventory management best practices.
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Inventory Management Best Practices
The SME manufacturing industry in India has seen significant growth over the years and alongside this growth trajectory, inventory management practices have also undergone essential change.
Let's look at some of the most effective inventory management practices in the industry:
Effective monitoring of inventory
Materials being processed in the manufacturing line, goods being packed, or a truck carrying finished goods; all these processes are highly visible and easily get noticed. However, a stack of raw materials lying in the stockyard or a rack full of expensive lubricants not being used may not catch your attention instantly. But when these scenarios are repeated frequently, it's likely that a large sum of your money is lying idle, leading to unused working capital. It also causes overcrowding of materials resulting in improper storage that could result in loss or damage and even material obsolescence. Monitoring inventory using the best inventory management software helps you to take full control of these factors and protects you from such losses.
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Optimize inventory to enable quicker deliveries
One of the biggest factors in retaining customer goodwill is timely deliveries. Unexpected delays in manufacturing, shortage of raw materials, and unplanned interruptions can cause order delays.
An important aspect wherein you can protect your organization's goodwill is by optimizing inventories. By holding neither too much stock nor too little, you can control material flow without increasing holding costs or lost orders. This enhances your order fulfillment processes and ensures your customers are happy!
To ensure timely deliveries and seamless inventory flow, explore effective tools and techniques of inventory management in your business.
Make everything measurable
What cannot be measured, cannot be improved! It is recommended to use this principle to set standards and methods to measure results, analyze gathered data and take steps to improve further with the help of tools of inventory management. Measures can be set for variations in inventory, cost of holding inventory, age of non-moving stocks, vendor performance, cycle time to see which materials are moving faster, and so on.
These measures help to achieve end-to-end control of inventory management. By using these techniques of inventory management, smooth operations can be ensured.
Never run out of stock
‘Material shortage' is a frightening term. Getting sandwiched between customer demand and material stockout is one situation you must avoid at all costs. Always ensure to maintain adequate stock, and ensure minimum inventory is maintained. Build a good inventory tracking system using inventory management analysis tools, so you are assured that your business activities run without any interruptions.
Take proactive steps
An SME business is truly smart when it takes proactive steps to ensure the mitigation of problems. All improvements in an inventory management system need not result from damage caused after a crisis! Through productive interaction with all concerned heads in the business, you can anticipate what challenges you may face in the future. And then understand the company's growth plans so that suitable inventory management systems could be developed, to ensure a state of preparedness. As we discussed at the very beginning, inventory is often a hidden cost that escapes the notice of most businesses until they spend time analyzing their balance sheets. By then, it is too late to rectify past mistakes. Proactive steps through proper inventory management tools for a small business are fail-safe protection against this problem.
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What Makes TranZact the Best Inventory Management Software?
Every business must recognize the value of inventory management systems and implement the best inventory management software required specifically for the needs of their industry. In this case, for the SME manufacturing industry.
Digitized inventory management software makes it easier to implement modern tools and techniques of inventory management for improved inventory performance.
TranZact upholds an expert team that helps SMEs to begin their digital transformation journey. TranZact's exceptional inventory management tool helps in the timely planning of purchases by monitoring stock. This ensures significant working capital is saved, procurement delays are mitigated and order delays are reduced. Using TranZact's inventory module, many customers have been able to reduce the inventory holding period from 60 days to 15 days. It offers a quick overview of the current stock and indicates low stock across multiple stores, all in real-time. It also offers easy barcoding when carrying out inventory movements and reduces significant manual effort. With hassle-free user experience, zero effort, and 24/7 lifetime support, TranZact ensures 100% implementation in a few days only. As software for inventory management, it is simple, easy to use, and highly flexible.
TranZact also provides end-to-end business digitization abilities, built specifically for SME manufacturing businesses. What's more, you can book a free demo and see how it works! You will surely find it to be the best in terms of ease of use, processing power, and scope for seamlessly scaling up.
FAQs on Inventory Management Tools
1. What is an inventory management tool?
An inventory management tool is an automated system that helps businesses control, and optimize their inventory levels, ensuring efficient stock management, record-keeping, and streamlined inventory operations.
2. What is inventory management in TranZact?
TranZact Inventory is a centralized cloud-based software for inventory and production management. It offers real-time and intelligent inventory analysis, with features such as barcode scanning, physical stock restriction, and more for SME manufacturers.
3. How many different types of inventory exist?
There are four main types of inventory: raw materials, work-in-progress (WIP), finished goods, and maintenance, repair, and operations (MRO) inventory. Other types of inventory used by businesses include decoupling inventory, safety stock, and cycle inventory.
4. Which software is recommended for inventory management?
An inventory management software that is easy to use, cost-effective, GST-compliant, and integrates with your core business and accounting tools is the best one to go for.
You can choose a user-friendly software like TranZact, that offers a lifetime free plan with base features. You have the option to upgrade only when you need advanced features, over and above the base modules.
5. Which is the best inventory management software in India?
Inventory management software should reduce operating costs and efforts while increasing return on investment and profitability. A digitized system like TranZact helps SMEs to grow better with the power of cloud, data, and technology, making it the best inventory management software in India.
6. Which inventory management software is the best one for small businesses?
The best inventory management software for small businesses will be the one that is simple to use, easy to understand and does not need much user training. It must provide all functional features and should be affordable and accurate.
TranZact is built especially for small and medium-scale businesses and therefore, all its features are specific to SME requirements, making it the best software for inventory management for small businesses.
7. Which is the best inventory management software for manufacturers?
A manufacturing business comes with several fine nuances: GST-compliant invoicing, transaction monitoring, accounting integration, inventory, production, materials resource planning, analytics, and more.
TranZact's inventory module fulfills all of these requirements and is impactful as SAP and simple as Excel. It offers a real-time stock overview, thereby enabling timely purchase decisions to reduce operating costs and prevent last-minute stock shortages. These end-to-end features enable it to become the best inventory management software for manufacturers.
8. Do you have to invest in new hardware or software to use an inventory management system?
No. If you have a laptop and access to the web, you can easily start using TranZact's inventory tool over the cloud. Being a cloud-based software means you can access it from anywhere, on the go.
