January 12, 2021 Growing & Complex Businesses en_US The new normal calls for a new way of thinking about inventory management. Here are five strategies to improve your inventory management efforts. https://quickbooks.intuit.com/cas/dam/IMAGE/A39BVvf15/Inventory-strategies-supply-chain.jpg https://quickbooks.intuit.com/r/growing-complex-businesses/inventory-management-strategies/ 5 inventory strategies for better supply chain management in 2021
Growing & Complex Businesses

5 inventory strategies for better supply chain management in 2021

By Kristy Short January 12, 2021

Today’s supply chains are more forward thinking than ever, leveraging data and analysis to accurately forecast demand and optimize production. However, short of a working crystal ball, no one could have predicted COVID-19 and the mass disruption it would leave in its wake. Even the most nimble and data-minded of companies were forced to pivot quickly and rethink strategy from the ground up.

Inventory management experts, Mario Nowogrodzki, CPA. CITP, CEO, and Keith Fileccia, COO, at Mendelson Consulting, agree that 2020 has been a year for the history books.

“There’s never been a greater shift in commerce since the Industrial Revolution. There has been pivoting on all fronts—from buyers and businesses to state and local regulators,” said Fileccia.

How COVID-19 affected inventory management

The 2020 pandemic caused shifts at every level of trade. Consumers are more intentional than ever in terms of buying behavior. Most shifted to online ordering and contactless delivery, and those still braving onsite interaction have replaced casual aisle browsing and impulse buys with well thought-out lists and a quick in-and-out shopping experience, including curbside pickup (also known as click and collect fulfillment).

Businesses moved to virtual storefronts (think Amazon) and went into rapid-innovation mode—selling alternative products and services to stay afloat. These changes occurred while state and local governments continued to enforce restrictions and mandates on commerce—all geared to slow the spread of COVID-19.

28% of small businesses are selling more products and services online this year. 94% say the coronavirus has influenced this change.

What’s next for the small business economy survey
(QuickBooks, September 2020)

Why it’s time to think longer term again

It’s safe to say that the business community has experienced the bulk of disruption—demanding rapid change to operations and a need to be more flexible than ever. In response, some companies went into triage mode—focusing on quick, reactive operational fixes, and hunkering down to ride out the storm. The most successful companies, however, are leaning into the storm and working to identify areas of weakness and transform operations for a more agile future.

“Small businesses are the backbone of the U.S. economy,” stated Nowogrodzki. “To survive, many had to shift product focus. For example, a company that made boat upholstery pivoted to producing masks and other PPE [personal protective equipment]. Others took the time to dissect supply chain issues and come up with workarounds, such as secondary suppliers and distributors, to fortify the process and mitigate future risk.”

86% of small businesses that have developed new products and services this year have done so as a result of the coronavirus.

What’s next for the small business economy survey

All the disruption has pushed us to a new normal, and looking forward, the one certainty is that inventory management will never be the same. From manufacturing and wholesale to retail and construction, we are taking lessons learned from the current economic crisis and putting business intelligence at the center of operations to thrive in this modern-day Industrial Revolution.

Keith Fileccia stated, “It’s all about better analytics and better control. Business owners have to dive into the data to understand buyer behavior and better predict supply and demand. This level of intelligence is imperative to help companies determine what to sell, how to produce and move goods, control quantities, and fulfill consumer needs.”

Better analytics, better control: Five inventory management strategies for 2021

The new normal calls for a new way of thinking about inventory management. And better analytics and better control are at the core of developing a more agile supply chain model. But how is this accomplished? The following principles are a good place to start.

1. Invest in the right technology

Collecting better analytics requires that companies adopt the right solutions. A sound inventory management system is the beating heart of any enterprise, offering real-time access to data that enables business leaders to forecast trends and shifts in buyer needs as well as gain full transparency into demand and inventory levels.

Leading inventory management systems output powerful analytics and provide much-needed visibility into operations. For example, monitoring run rate to gain visibility into how much of an item you are selling at a given time helps accurately predict future demand.

In the time of COVID-19, it’s also important to note the necessity of human interaction in the management of business analytics. The pandemic not only caused major breakdowns in supply chains but also drastically impacted demand based on consumer perspectives (rational or not). Take paper products as a good example. Consumer panic over the availability of toilet paper cleared shelves and spiked demand—a factor no inventory management system could have predicted despite the sophistication of artificial intelligence.

Fileccia explained: “Someone has to take the time to interpret the data and look at all the factors to determine what is going on. Human interaction is necessary because business intelligence alone is not enough.”

Finally, for those who have yet to do so, integrating accounting and inventory management systems is also important to capture better analytics. According to Nowogrodzki, “You own your cash and you own your inventory, so these systems must be linked.”

According to small business owners, the first thing new businesses should get help with is setting up financial systems correctly.

What’s next for the small business economy survey

It’s also important to note that technology overall has played a big part in mitigating uncertainty about the future among small business owners. QuickBooks’ Small Business E-Commerce Survey (December 2020) reported that nearly one in three (31%) of small businesses that increased digital technology investment this year said that this action directly contributed to higher profits. In addition, more than one in four (28%) said the investment has helped them feel more confident about the future.

2. Plan for the unexpected

When operations are running smoothly, vulnerabilities can fly under the radar. COVID-19 hit supply chains hard, quickly revealing operational deficiencies. Understanding where weakness lie requires a lot of digging that extends beyond first- and second-tier suppliers to distribution facilities and transportation hubs.

As such, supply chain mapping is an exercise worthy of a business’s time and cost investment. This method allows a business to pinpoint potential vulnerabilities and reduce risk by identifying alternative suppliers, distributors, and transportation providers at each level of the supply chain.

Detailed supply chain mapping can be time-consuming and expensive, which is why many companies do not invest in it. However, adopting such a process would likely be far less costly than a business coming to a halt in the face of mass disruption. The What’s next for the small business economy survey reported that the top three financial processes small business owners wish they’d invested in sooner are expense tracking, inventory, and invoicing.

Preparing for the unexpected can also include identifying new and innovative options that may appeal more to buyers. This is especially true in relation to the sales process and pricing—given that pandemic-era consumers are being more intentional about purchases and hypersensitive to price points.

For example, businesses may consider accepting installment payments, allowing consumers to purchase higher-priced products over time. According to the Small Business E-Commerce Survey, small businesses that accept payments in installments reported:

1. Better business performance—with 58% reporting higher than expected profits.

2. Higher levels of confidence—with 80% optimistic about the future.

3. Take control of your inventory

According to Nowogrodzki, “One of the biggest mistakes a business can make is entrusting third-party logistics [3PL] providers with full control of inventory.”

The time has come to turn the tables; company leaders need to maintain complete control of their inventory. Don’t rely on 3PL providers to accurately report on inventory levels. Take the lead role by regularly monitoring, auditing, and managing inventory in your system to maintain an accurate picture of goods.

“In relation to inventory, the days of guesswork and trusting your gut are long gone,” added Nowogrodzki. “Businesses must take back the reins and be in control of inventory.”

The ability to gain full on-demand visibility of inventory is accomplished by adopting the right high-powered solution. In fact, to regain control of inventory, more businesses are increasing their technology investment this year. According to the Small Business E-Commerce Survey, almost one in two (49%) small businesses are spending more on digital technology now compared to a year ago.

4. Identify alternative, but profitable sales channels

As supply chains broke down and storefronts were forced to close, business owners frantically moved online to continue operations. However, many failed to properly analyze costs. For example, moving sales to an online marketplace allowed owners to stay in front of their target audience, but at a lower rate of profitability.

While the transition from brick-and-mortar to online represented a sound alternative, the percentage of profit lost to marketplace vendor fees took a big bite out of the bottom line. That means that identifying alternative and profitable sales channels is a required exercise as we move into 2021.

5. Be clear on what you sell

In a year of unprecedented shifts in product focus and a move to digital storefronts, it’s imperative that businesses are fully transparent about what they sell.

There are several ways to help accomplish this, including making sure that your website is up to date and that your marketing messaging resonates with target audiences. Now is the time for message unity across departments and roles (from marketing to logistics) to ensure consumers are aware of what you sell and why the shift occurred.

“Many companies pivoted this year—from alcohol distributors producing hand sanitizer to consumer paper vendors transitioning focus to retail paper goods in an effort to meet demand [for example, consumer grade toilet paper],” said Fileccia. “If you are not clear on what you sell, you can’t expect consumers to be.”

Final words

While it shouldn’t take global supply chain disruption to initiate systemic industry change, this is exactly where we are today. The pandemic simultaneously stretched and stuffed supply chains and left many companies struggling to survive.

Success in 2021 and beyond requires planning and strategizing. It requires companies to leverage business intelligence to properly forecast buyer behavior and needs to ensure supply and demand are properly in sync. It means developing a strategy to reduce the risk of disruption and ensure inventory control via alternative sources. And, finally, it means adopting a new mindset as we continue into the new era of inventory management.

Learn how QuickBooks Enterprise can help you take control of inventory management with Advanced Inventory.

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Kristy Short, EdD and Chief Content & Communications Officer at Rootworks offers more than two decades of marketing strategy, marketing communications and content development experience within the accounting profession. She has coached hundreds of firms on marketing messaging, brand presence and how to build a positive online presence in order to compete in today’s competitive and digitally driven landscape. She has been named to CPA Practice Advisor’s Most Powerful Women in Accounting list multiple times and has been a contributing columnist for both CPA Practice Advisor and Accounting Today over her many years in the profession. Read more