What is inventory management?
A component of supply chain management, inventory management refers to the supervision of goods from manufacturers to warehouses and from there to the point of sales. The key function of managing inventory is to keep a record of all new or returned products coming in and going out a warehouse, to the point of sales.
Inventory management practices needs to be evaluated based on the industry vertical, company specific requirements/expectations. Today, we are here to discuss, how different is inventory management for Manufacturing & Ecommerce sectors.
The difference in inventory management: Manufacturing vs. Ecommerce
In Ecommerce environment, as most retailers have multiple suppliers and merchandise that can be easily substituted, the supplier capacities can be considered unconstrained. Same goes for the transportation capacities, as more carriers can be added on routes where required. That leaves the warehousing storage constraints as the only real constraint, but even these are seldom modeled in retail chains.
In Manufacturing environment, manufacturing chains are constrained by manufacturing capacity – (available resources, time, skills, etc.) and this is necessary that must be formed for feasible planning.
As a result, ecommerce sector primarily consists of propagating demand through the supply chain tiers largely unconstrained, with only the inventory levels having been modeled. The latter adequately address the need to maintain the required service levels.
In contrast, the manufacturing sector consists of propagating demand through the supply chain tiers constrained by the manufacturing capacity (the capacity of required resource, skill, and material) at each node, in addition to the inventory levels that must be maintained for sustaining the required service levels.
Size of the network
Another difference that highlights the inventory management practices for the manufacturing and ecommerce sector is simple the size of the network. Ecommerce network typically consists of multiple warehouses, and a larger number of retail location. A Manufacturer environment on the other hand will normally have a handful of manufacturing locations and warehouses.
Therefore, having an inventory management system across the network through optimal transportation, and warehouse planning becomes much more important in a ecommerce sector. Also, the sheer number of products dealt within the Ecommerce environments is huge compared to most Manufacturing environments (exceptions exist).
Type of the network
As mentioned above, Ecommerce environment usually consists of warehouses and stores. A Manufacturing environment usually consists of storage location. Therefore, ecommerce sector typically emphasize managing inventory and service levels, the manufacturing sector also manage resource planning and usage.
In Manufacturing environment, the supply chains usually have longer end-to-end lead times (due to manufacturing process lead times) and therefore, traditional inherently less flexible to volatility. In Retail environment, the supply chains can be nimble with the help of an online inventory management system that tends to manage inventory levels within a centralized system.
In a Ecommerce environment, the primary investment is in the inventory/stock flowing through its chain. Therefore, managing this asset(inventory)is essential to a retailer’s success. After the cost of inventory, the largest expense in retail are referred to their stocking and distribution. So much so, that the ROI(returns on investment) is portrayed as the gross margin returns on inventory. So, ecommerce sectors need to maintain a lean distribution chain means optimal service levels between supplying and consuming chain and a higher inventory turns. The level of inventory in a ecommerce business directly affects the cash-flow and customers- hence, inventory must be managed effectively.
In a Manufacturing environment, the inventory/goods(raw materials as well as finished goods) within the chain are large investment same as discussed in Retail environment, but another solid investment is in manufacturing process, equipment used and resources. All equipment gets depreciated after certain period, however such equipment adds value to manufacturer’s process. Therefore, apart from maintaining optimal inventory levels, more important is keeping the equipment and resources effectively utilized.
Therefore, in Ecommerce environment, an accurate inventory flow is a key feature to the any business that your are in. Implementation of cloud-based inventory software solution like Orderhive will ensure proper inventory optimization across multiple channels.
In contrast, the Manufacturing environment has to focus more on their equipment and resources, unlike ecommerce environment. Techno-software solution can be a real advantage, but with few manufacturing units to manage, a traditional approach to manage inventory is more preferred.
Number of staff
To manage inventory flow across multiples store and warehouses can be time-taken and prone to costly errors, therefore having a centralized inventory management flow in Ecommerce environment is constrained more than the number of manpower and the cost to manage it.
In contrast, the Manufacturing environment has few limitations around inventory management. The managing of inventory is done within the unit, and as the key feature to any manufacturing sector are constrained by their available resources, time, skills; having and maintaining the appropriate staff is emphasized more, unlike Retail environment.
Merge with technology
In both environments, merging with technology can be true differentiator. However, it can provide a higher return in Retail environments than in (most) Manufacturing environments.
In a Manufacturing environment, there are few parameters around inventory management that are fully controlled within the corporation’s four walls, as mentioned above and these alone can provide a compelling ROI for a supply planning exercise. For Retail environment, the main asset being managed through the supply planning is inventory, and a fully merging with technology and inventory management for ecommerce store can ensure smooth flow inventory across the networks for most optimal and demand fulfillment.
Savio Fernandes is a writer who influences. Writing for over three years at Orderhive, he is currently focused in offering eCommerce and retail solutions for start-ups and medium business owners.
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