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10 Key Insights: Importance of Inventory Control for Distributors

Naama Aharoni  |  November 25, 2022

Why is inventory control so important for SMB distributors?

If your company's inventory is not appropriately managed, it can be a massive drain on resources and lead to supply chain disruptions. Businesses spend an average of 25% to 35% of their budget on inventory costs. This means that poorly optimized inventory management can get quite costly.

Here are 10 reasons why inventory control is so important for SMBs in wholesale distribution.

1. Increasing customer satisfaction

In today's world, customers expect businesses to have the products they need in stock and to be able to deliver them quickly. If you can't meet your customers expectations, they will go to your competitors. A recent survey has identified that 40% of consumers would take their business elsewhere if they couldn't find what they were looking for at their usual store.

If your customer orders a product to figure out later that it's out of stock, this can result in a canceled order, which is costly for your business. ERPs and warehouse management solutions can integrate with other systems companies use, such as customer relationship management software. When a customer calls in, your representatives can use warehouse management information to give them the best possible service. A system is essential for meeting customer expectations and keeping them loyal to your business.

2. Supporting business growth

As your business grows, so does the complexity of your inventory. You'll need to keep track of more products, more SKUs, and more suppliers. If you don't have an inventory management system in place, it will be challenging to scale your business without running into supply chain disruptions

3. Coping with supply chain disruptions

ERPs and warehouse management systems are designed to capture large pools of data. Not only do they help reveal what's going on in the warehouse, but they are also useful in showing potential roadblocks and disruptions along the entire supply chain. With inventory control, businesses can minimize the impact of disruptions by ensuring their orders are fulfilled on time and minimizing stockouts.

4. Improving cash flow

Many businesses struggle with cash flow because they're tying up too much money in inventory. As a wholesale distribution business, you generally have a lot of inventory on hand. And depending on your business model, you may also have a lot of money tied up in accounts receivable. To improve your cash flow, you need to find ways to reduce the amount of inventory you're carrying while still meeting customer demand. This can be challenging without an automated inventory control system because you need visibility into your customer demand to forecast what you'll need and when you'll need it.

5. Reducing costs

The biggest immediate opportunity for inventory control is to reduce your company’s costs. In most cases, these reductions will come from a reduction in the amount of inventory you need to maintain on hand. This could be achieved through several methods, including reducing the number of SKUs you carry, improving your forecast accuracy so that you order fewer products than you need, or streamlining your operations to spend less time and money on inventory management.

Reducing stock-outs and overstocks can lower your overall inventory costs by 10% (Source: Zebra). Imagine what you could do if 10% of your inventory’s value was no longer tied up in product on the shelf but accessible for your business to use elsewhere. That money could be used for research and development, expansion, automation initiatives, employee recruitment…the list goes on..

6. Reducing waste

In current market conditions, reducing waste and getting the most out of your inventory is more important than ever. Many wholesale and distribution businesses don't realize how much they're wasting until they look closely at their inventory management practices. Reducing waste is essential for businesses, and inventory management can help. Excess inventory can lead to waste, as products expire or become damaged.

7. Enhancing decision-making

Do you have the reports you need to make informed decisions about your inventory? Most inventory management systems come with robust reporting features that give you visibility into every aspect of your inventory.

This data can help you make informed decisions about what products to carry, how much safety stock to keep on hand, and when to reorder. You can generate reports that can help you track trends, understand what's selling and what's not, determine where you need to cut costs, and much more.

8. Reduce manual labor inaccuracies

How much time are your employees spending on manual inventory tasks? How accurate are they?
If you're still using spreadsheets or paper-based systems, the answer is probably "too much time" and "not very accurate.” Manual inventory management is error-prone and time-consuming. It's also one of the most significant pain points for businesses. Automating your inventory management can help you reduce errors, free up employee time, and improve accuracy.

9. Improve space utilization

Wholesale and distribution companies often have a lot of inventory on hand. This can lead to storage issues and inefficiencies. If you're struggling to find space for your inventory, it's time to take a closer look at your inventory management practices. An automated inventory system can help you optimize your storage space and improve your overall efficiency.

10. Compliance and auditing

Many businesses are required to comply with industry-specific regulations. For example, businesses that sell food or pharmaceuticals must adhere to strict food safety and quality standards. Inventory management systems can help businesses track their inventory and ensure compliance with regulations.

These are just some reasons why inventory control is essential for SMB distributors. If your business doesn't have a sound system in place, now is the time to invest in one. Contact us today.

Download the complete guide for better inventory control for SMB distributors: