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Inventory Management is of prime concern in retail industry. The profit per unit of a product in retail industry is miniscule. The whole industry runs on the belief that the miniscule margin can get multiplied by volume sales to make handsome gains. The profitability of retail industry can only be made if administrative costs are low. Retail Industry can only employ optimal number of employees.
Inventory Carrying Costs
One of the very important aspects that can make or break a retail chain is the Inventory Carrying cost. The ideal retail unit would be one which can predict the exact number of items of a product that will be sold a particular day, so that that number is ordered.
The net result is that the manufacturer can be paid for the goods it supplied from the proceeds of the sale made on that day. If one can not work that way, it means that the retail unit has to invest money to stock the retail unit. All unsold units at the end of the day costs one days interest on the value of the stock. This is called the Inventory Carrying Costs.
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It may not be possible to implement the scenario above where inventory carrying cost is zero, but inventory carrying cost can be brought down by good inventory management software. Good inventory management software can trigger an order the moment the balance of stock for a product reaches below threshold levels.
The quantity to be ordered need not be a constant quantity. It is possible to predict the sales of the product for the next order cycle by data mining the sales numbers of the store from historical sales figures. All these techniques are possible if you have an efficient inventory management software. While we will not be able to have a zero inventory cost, we may achieve substantial savings in cost by adopting Just-in-time ordering.
Benefits of Inventory Management System
We have checked out the benefits to the Retail Industry by adopting good inventory management software. One should not forget that the software can also benefit the manufacturer. One of the problems face by the Production Managers of manufacturing units is to choose the batch size of products.
If they manufacture too many then they will have to bear the inventory carrying costs until it is dispatched to the Retail Units. If Retail Units can order in time and also predict their future orders, manufacturers can save costs too. The net result is that customers get their products at lesser costs.
One should not forget that the POS system operating at the retail unit counters is the biggest tool available to the supply chain management, It is the data produced at this counter that enables to manage inventory as well as predict future sales.