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Inventory management as a key driver of company profit

Inventory management as a key driver of company profit

We offer you to look at the case regarding optimization of inventory management using the example of retail chain

The main distinguishing feature of the leading companies is the continuous control of quality at all working stages.

For the purposes of qualitative improvement of control over the inventory management system, company’s management team asked ABM Cloud consultants for an expert evaluation. They found several existing issues that require immediate solution:

  1. Optimize the staff’s working time;
  2. Reduce the inventory;
  3. Increase the transparency of order placement scheme and controllability;


Methods of controlling the inventory management

During the integrated analysis of company’s business processes, it was revealed that the existing monitoring system was lacking possibility to trace the entire chain of changing the inventory level, starting from order placement to arrival of goods at a warehouse. It eliminated the possibility to monitor and conduct analysis of reasons for surpluses and lost sales. The inventory manager should be able to track the inventory level for each SKU. It is important to understand all the aspects of order placement: by whom, when and in what quantity the order was made, what is the reason for its adjustment. In the process of implementing the ABM Cloud system, it became possible to track the whole chain of goods turnover in real time mode. The system automatically estimates the results of inventory management each week in monetary terms at each storage unit.


Inventory management system automation

Lack of the fixed insurance stock entailed the problems with overstocks. During the project, the minimum balance of each product at the store was recorded – ending inventory from delivery to delivery. Based on this level of insurance stock, the system automatically maintains the necessary inventory for the beauty of the shelf, which allows the company to work without interruption, while not allowing surpluses and lost sales. In addition, the choice of this optimization mechanism is effective in case of a high intensity of purchasing flows.

Additionally, the planograms were written in terms of merch display, where the place of each product unit was indicated in details. The planogram was developed considering the convenience of a particular variant of display for a buyer, as well as taking into account the offers of main suppliers.


Assortment management

Inventory management

At the initial stages of the system implementation, a complete picture of all the surpluses in the product assortment was visible. It became obvious that there is a need of assortment optimization. After revealing the goods with low turnover, it was decided to remove some of the non-movers from the assortment. Also, with the help of automatic reports, the categories of goods with minimal turnover were identified in all product groups, which were included later into the mass sale. The result of this decision was the release of frozen funds, the increased loyalty of customers, and, of course, the growth of sales.


Transformation of logistics supply chain

Company was using a scheme of distributing the promotional goods. Local suppliers delivered the promotional goods to the distribution centers first and then to the stores. This scheme did not confirm its effectiveness. The main reason for such distribution is the unreliability of suppliers and lack of the ability to accurately predict the required stock level of the promotional goods. The company was forced to create the surplus stock in the warehouse to ensure the constant availability of goods on the shelf. After implementing the system of inventory management automation, it became possible to deliver the promotional goods directly to the stores without using the RC. Besides, the company revised a number of contracts with major suppliers, where penalties for shortfall in delivery were clearly fixed. All this made it possible to regulate the frequency of deliveries and the number of demanded promotional products, depending on consumer demand.


Centralization of inventory management

Earlier, 50 % of commodity orders were made by merchandisers on-site. Now, the orders are made based on the general pattern of commodity stocks distribution. The procurement from a single center made it possible to increase the monitoring efficiency over the supply processes. After implementation of the system, the inventory manager can focus more on the analytical work, while the system automatically performs all the routine processes. More information about the centralization of inventory please read here.

Effects after optimization of the inventory management processes in the company:

  • Optimization of the stuff size that is responsible for order placement;
  • Increase in the level of goods representation on the shelf;
  • Reduction in the level of stock in the warehouse;
  • Releasing the financial resources to increase the company’s capacity;
  • Automation of assortment replenishment at the selling spot.

Implementation of the inventory management system in the retail chain serves as an example of strategic approach to the business development without attracting additional investment.


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