In just a few years, big data completely revolutionized the business world. Where it was once considered a useful tool, it has now become the backbone of entire industries. Some even argue that data is the new currency.
The data movement is sweeping through every sector of the traditional economy. Business leaders should stay ahead of the innovation curve to reap the benefits of the analytics-driven economy.
One of the most promising applications for data in the corporate world is inventory management.
And no, we’re not just talking about demand forecasts. Forecasts are fantastic supply chain tools, but the future holds something even better. What we’re talking about is real-time inventory management.
In this article, we cover cutting-edge data strategies that can help businesses implement real-time inventory management. These analytics-focused tools and techniques will boost efficiency throughout your supply chain:
- Enterprise Resource Planning
- Internet of Things
- Radio-frequency Identification tags
- Prescriptive analytics
But before we get into that, let’s answer some important questions.
WHAT IS INVENTORY MANAGEMENT?
Inventory management is a crucial sub-set of supply chain operations. It refers to how a company stores, orders, organizes, re-stocks, transports, and tracks inventory.
Traditionally, these tasks were carried out in brick-and-mortar warehouses by personnel with clipboards. Nowadays, there are a wealth of tech and data tools at our disposal that have re-imagined this process.
With the proper strategies, businesses can use inventory management to thrive in our rapidly changing material economy.
We talk more about the importance of inventory management to overall company health in our article, How Better Inventory Management Leads to Increase in Profitability.
What is real-time inventory management?
As the name suggests, real-time inventory management involves making supply chain decisions based on real-time data. By supply chain decisions, we mean things such as purchases, manufacturing, distribution, raw materials expenditures, etc.
The “real-time” technique stands in contrast to its predecessor data-application approaches, which primarily involved using past data to predict future needs. This is what we call forecasting.
While forecasts are great, real-time inventory management is unbeaten in its waste-reduction and profit-maximization potential. After all, the only thing that can predict future behavior better than past behavior is present behavior!
This is especially true in today’s tumultuous business climate, where unpredictable supply chain disruptions cause billions in losses.
How can businesses implement real-time inventory management?
If you are a small business owner, you might think real-time inventory management is unnecessary or, perhaps, out of your league.
But no matter the size, every business can benefit from modernizing its supply chain operations. And thanks to recent technological advances, it’s easier than ever to do so.
Below, we discuss some of our favorite data-driven tools for real-time inventory management: enterprise resource planning, Internet of Things, radio-frequency identification tags, and prescriptive analytics.
1. Enterprise Resource Planning
Enterprise Resource Planning (ERP) is a type of corporate software that centralizes and automates many business processes. ERPs were first created to streamline inventory management. However, they’ve evolved to support a range of administrative functions.
Modern ERPs provide a platform to manage the following operations:
- Human resources
- Supply chain
So how can ERPs help with data and real-time inventory management? Well, when properly implemented, ERPs resolve a critical pain-point for many organizations: inter-departmental communication.
We talk more about the struggles of cross-department collaboration in our article, Why Is it So Hard for Businesses to Get S&OP Right?
ERPs can bridge inter-departmental gaps because they integrate a wide range of processes into a single system. This integration allows for data to be shared across departments instantaneously. The result is departments can make on-the-fly inventory and production decisions based on real-time company data.
But that’s not all! When utilized to their full potential, ERPs can also automate inventory processes, which further optimizes supply chain efficiency.
For instance, suppose a customer places an order on your website. The ERP could process the purchase, prompt production to start on the order, and reorder inventory that is low in stock. All of this in a fraction of a second!
With all of their benefits, it’s no wonder that 53% of businesses consider ERP to be a priority investment! (source)
2. Internet of Things (IoT)
The Internet of things, or IoT, is a revolutionary advancement in the supply chain world. In fact, spending on IoT is forecasted to increase from $186 billion in 2017 to $435 billion in 2023.
IoT is a network of everyday objects that are connected to the internet. Through small chips, these everyday objects are transformed into “smart” devices that transfer data to one another and to computing systems.
IoT is a brilliant investment for companies who want to increase data transparency and efficiency in their inventory system. You can embed internet connectivity into anything from transportation vehicles to the actual product you sell. These items then collect, store, and share business data in real-time.
Here are some examples of how IoT can improve your company’s supply chain and inventory management efficiency:
- Enable rapid information-sharing
- Track orders all the way from production through delivery
- Collect distribution and logistics insights
- Detect equipment failures before they happen
- Collect compliance data
3. Radio-Frequency Identification (RFID) tags
Technically, radio-frequency identification (RFID) tags are an example of the Internet of Things. However, this subset of IoT is incredibly useful and deserves its own spotlight. RFID tags use radio frequency waves to transmit data remotely.
RFIDs enable end-to-end tracking, which means inventory can be assessed at every point of the production stage. Needless to say, then, RFIDs can drastically improve inventory visibility for organizations and broaden their spectrum of inventory data.
Just how much can this tool improve inventory data accuracy? Recent data shows RFID systems can get inventory accuracy up to 95% (source).
The benefit of RFIDs over, say, traditional barcodes, is that they do not require physical contact with scanners. With barcodes, inventory tracking requires physical manpower and can delay efficiency.
Have you ever had to flip a cereal box over and over at the self-checkout line because you couldn’t get the scanner to read the barcode? Warehouses that utilize barcode scanners encounter the same sort of problem.
However, with RFIDs, this is no longer the case.
Every single inventory component can be accurately tracked without the need to unpack it, locate its barcode, and have a person or machine physically scan it. Simply being in the vicinity of a scanner allows the RFID to be accounted for.
RFIDs go beyond just accounting for inventory, though. When integrated with other systems, RFID data can automatically prompt production of certain items. For instance, some clothing retailers use RFID data to identify fast-selling merchandise in real-time and initiate increased production of high-demand items.
Productivity can skyrocket and accurate data-collection can flourish with a proper RFID system. So much so, in fact, that RFID tags can increase sales by up to 18%. (source)
4. Prescriptive Analytics
If you’re in the business world, you are probably well-acquainted with predictive analytics. Forecasts are a form of predictive analytics, as they use historical statistics to predict future demand. However, prescriptive analytics goes one step beyond that.
After predicting likely future outcomes, prescriptive analytics uses machine learning/artificial intelligence to suggest the most profit-maximizing course of action. Hence, the name “prescriptive:” it prescribes a course of action.
Prescriptive analytics is at the absolute cutting-edge of real-time inventory management. It can be utilized for much more than supply chain functions, but it is particularly useful here.
For instance, prescriptive analytics is used to alter airline ticket prices according to complex demand-influencing variables (ie. day of the week, weather conditions, current events).
Prescriptive analytics is also used by fast-fashion companies to adjust garment pricing in real-time based on consumer data. For instance, some companies will generate an additional coupon code if they predict a customer is going to abandon their cart.
This promising tool can be used to inform purchasing decisions, marketing tactics, transportation routes, client on-boarding terms, and much more. But the most crucial aspect of predictive analytics is having the right data-collection in place.
This is where all of the other inventory management points we’ve mentioned–ERPs, IoT, system integration, RFIDs, data accuracy, etc–become particularly important. They can serve as the building blocks for a prescriptive analytics system that takes your organization’s performance to the next level.
Companies love to talk-the-talk about data, but not all of them walk-the-walk. Businesses should seek out proven tools for data-collection and manipulation to thrive in our fast-paced economy.
Big Data and analytics can be especially fruitful in the inventory management sector. Tools such as ERPs, IoT, RFIDs, and prescriptive analytics can jump-start your business’ journey to real-time inventory management. Real-time inventory management, in turn, can take your business to new heights.
At RTG Solutions Group, we specialize in technology implementation, and data is at the core of everything we do. Interested in learning about how your company can transform its use of data? Contact us today to speak with our supply chain experts!