Get my free wholesaler operations strategy session

6 Ways to Building a Solid Inventory Analysis

When it comes to handling inventory strategic processes and analytics are key. Wholesalers can learn from what the Kanban approach has done for Toyota and others, and how companies around the world are embracing a more data-driven approach to inventory analysis.

Here are six ways that improving inventory analysis helps companies to compete in today’s digital age.

1. Using a Master File Approach

One way to enhance inventory analysis with data-driven tools is to centralize inventory data.

That often means creating a set of inventory master files that go into a central data center repository. Database administrators and data engineers will look at how to create the custom fields that will make these master files interoperable. For instance, a master list of SKU codes for products, as well as global inventory data on where everything is in the business network (warehouses, etc.)

2. Evaluating ERP

Inventory analysis also has to be integrated into a full ERP system.

As ERP became a big buzzword early in the 21st century, companies were often looking at consolidated comprehensive platforms. Vendors built ‘castles’ of ERP that would include things like customer relationship management, identity and access management, and yes, inventory handling tools.

However, there can be a downside to implementing an ERP. They are complex and require customizations. Some estimates are that over 50% of purchased ERPs never get implemented. For those that are successfully implemented it can take years to master. Build in ample time and funding for extra training and customization whenever you are implementing a new ERP.

3. Fine-Tuning an Inventory Life Cycle

One powerful tip for inventory analytics is to work on creating a full inventory life cycle and apply details to it as necessary.

FOB, POE, landed goods, and ecom inventory operate on different cycles. Each kind of inventory needs to be analyzed from a different perspective. Detailed reporting is critical in that analysis.

Replenishment business can be lucrative but it comes with risk. Corporate brainstorming works wonders in improving how a company treats its replenishment inventory, but only with the proper analytics and forecasting tools. You may have heard of JIT or just-in-time inventory that creates a leaner warehouse model and saves tons of money. That’s just one flavor of inventory handling that can help to make processes shine and decrease waste and inefficiency.

The tools and resources driving inventory life cycle are often related to close tracking of inventory pieces. Companies that have excess inventory languishing in warehouses jeopardize cash flow and profit margins.

4. Evaluate How to Move Inventory

As companies are creating those global inventory analysis tracking systems, they can also build the right inventory philosophy to help with long-term planning.

In other words, business leaders need to assess critical questions such as: how should products move through a pipeline and how long is it acceptable for a product to sit on the warehouse floor?

This question gets answered differently by different companies in various industries based on what they’re selling.

Stale inventory ties up valuable cash that could be used to bring in new more saleable product and the longer it sits in the warehouse the less valuable it tends to become. Stale inventory can inflate your gross margin estimates on a product. Here’s how that happens: If you sell half of the product category at 35% markup those sales show up in your margin reports. But the second half may need to be sold at cost, but they are just sitting unsold on the warehouse floor. Your markup is really half of what you thought but you don’t know it yet. .Until you sell those goods you may be operating under the assumption that the product or product category is more profitable than it actually is.

Stale inventory can also impact your borrowing base. Factors that lend against inventory often monitor the age of the inventory. If it is too old and your factor notices, suddenly you are facing what may be a serious cash flow issue.

Smart wholesalers use aging report to carefully monitor their inventory.

5. Consider Auditing Tools

An outside pair of eyes is always important.

Wholesale businesses can take a page from the financial world and use audit processes to streamline business processes and make sure that they are not leaving money on the table.

In the financial world, audits apply to accounting principles – how money is treated, and how digital data is maintained with transparency.

It’s different in the inventory analysis world–that type of auditing will look at whether products move swiftly and efficiently from warehouses to delivery systems. The audit will look at whether inefficiencies are decreasing revenue and increasing cost. Again we can go back to the Kanban model that has been so important and renowned in the past.

6. Utilize Contingency Planning and Special Event Analysis

Another thing to remember in planning inventory analysis is that it’s not always ‘business as usual.’

Sometimes containers arrive at the warehouse and need to be turned the same day, or worked on overnight for an early morning pickup. Sometimes packing or ticketing issues overseas require special project work at your warehouse. When the emergency occurs you are at your weakest negotiating position with your 3PL, so negotiate in advance. Get a detailed rate sheet that includes services that you may utilize in an emergency.

Planning for the inevitable disruptions, special events and emergencies is a critical part of better inventory cost analysis. When business leaders can promote contingency planning, costs are reduced and the efficiency of systems benefits.

Managing your inventory strategically and analytically will ultimately give you a long-term competitive edge.

Wholesale Executive Insider is a publication dedicated to helping owners of wholesale companies stay up to date with the latest industry insights to improve their operations and increase their bottom line.

Our team has deep industry knowledge, and a network of solution providers. If you’d like to get free advice and recommendations on, feel free to book a time to speak 1-on-1 with one of our knowledgeable industry advisors.

Share this insight