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Inventory Management: Fulfillments Greatest Challenge

Whether in a strong or a weak economic environment, effective inventory management is a key part of order fulfillment excellence.

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When the economy is thriving, customers purchase products at an astonishingly rapid rate, and keeping on top of inventory is the greatest challenge of a fulfillment center. When the economy is struggling, customers cut back on or even cancel orders at an astonishingly rapid rate--and keeping on top of inventory is still the greatest challenge of a fulfillment center.

But what exactly does excellent inventory management look like?

The Just In Time Revolution
Its almost impossible to talk about inventory management in the field of order fulfillment without talking about Walmart. The fabled just in time inventory management system perfected by Walmart has quite literally revolutionized the fulfillment industry.

Here are two major fulfillment improvements made famous by Walmart:

  • Lower Holding Costs. Especially when dealing with such massive quantities of product, the cost of space is immense when products just sit there. Warehouses fill up fast and excess inventory makes organizing and finding items difficult. When a fulfillment center can move products only when they need to be moved, and only to where they need to go, those andquot;sitting thereandquot; costs are reduced. The key to high performance in this arena is a highly developed software system--along with managers conscientious enough to exploit it fully.
  • Lower Ordering Costs. Lower ordering costs allow customers to get more while buying less. Not every customer can afford to buy in bulk, and then there are always those customers who could buy in bulk if they wanted to, but they dont want to. Order minimums, then, can be a bar to sales. But in order for a fulfillment house to process small orders profitably, good software and good managers are necessary.

Not every fulfillment center can function as efficiently as Walmarts, but every fulfillment center can and should strive for lower holding costs and lower ordering costs.

Those are definitely two things to look for in a fulfillment house.

Fulfillment Still Not Even Close to Easy
Without a doubt, cutting-edge inventory management practices have improved order fulfillment as an industry. However, this does not mean that the andquot;inventory problemandquot; is in any way solved. On the contrary, its an issue that must be addressed daily.

In todays business world, order fulfillment often involves dealing with not just one supplier but four; not just one country but three; not just one customer but 5,000. The ascendancy of online ordering has added another layer of complexity to the fulfillment process.

In a system with so many moving parts, inventory issues are a constant concern. Too much inventory means too much cost, but too little inventory can mean unfulfilled customers.

Inventory concerns can become particularly acute in leaner economic times. Order flow may decrease substantially, causing drastic inventory reductions. Nevertheless, fulfilling the orders that do come in is as important as ever.

Fulfillment Entails Working Together
Walmart may get all the credit, but what about Walmarts partners?

Its an interesting question, and an apt one, insofar as it points to a basic reality of inventory management: it takes two to make a thing go right. No fulfillment center should be counted upon to know more about a companys inventory needs than the company itself.

Sources
Accenture
Inventory Management Review


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