Inventory Management Strategies Improving Bottom Line

For the sustainable functioning of the organization, effective management and constant monitoring of the level of its inventory are necessary. The need for strategic activities in inventory management is since the demand for specific goods is dynamic, influenced by many factors, obstructs to make the right decisions regarding procurement. From a business perspective, managing inventory means having the right stocks, at the proper levels, in the right place, at the right time, and at the right price. Thus, there are various inventory management strategies, which are a set of measures for creating and replenishing stocks, organizing, controlling, and planning supplies.

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According to Calatayud et al. (2020), one of the most effective inventory management strategies is lean inventory management. It ensures an organization’s competitiveness by producing outputs or providing services in quantity required by the customer, with high quality, minimal resource costs, and low cost. Muller (2019) notes that implementation of this strategy can reduce the cost of production and the duration of the production cycle by 50%, decrease labor costs by 50% while maintaining or increasing productivity, increase production capacity by 50% with the same area, improve product quality, and enlarge profits. This is why it is invaluable for any retail business. Lean inventory management strategy can not only enhance the productivity of an organization but also bring more value to customers. Thus, lean inventory management helps to reduce costs and increase the company’s efficiency and bottom line.

Another strategy that positively impacts a company’s bottom line is supply chain management (SCM). It is strategic coordination of business function within a business organization and through its supply chain to integrate supply and demand management. According to Calatayud et al. (2020), the primary objective of SCM is to reduce risks and uncertainties in the supply chain, thereby positively affecting inventory levels, operations and production cycle times, processes, and ultimately end-users service levels.

The effectiveness of implementing a lean inventory management strategy can be seen in the example of Amazon, which is one of the leaders in retail and e-commerce. Kraynak and Olmez (2020) assert that following the lean operations model, Amazon modernized warehouse facilities to make it easier for workers to find, sort, and ship orders to customers. Moreover, it uses advanced inventory management software to estimate and forecast consumer demand across regions. The company also optimized the layout of its warehouses so that goods that are usually bought together are located nearby. According to Kraynak and Olmez (2020), Amazon’s 2017 sales were about $ 177 billion, and the growth rate reached 27%. Furthermore, Calatayud et al. (2020) claim that Amazon has reshaped retail by using bold supply chain strategies. Therefore, the above strategies have a significant positive impact on the company’s bottom line.

Thus, inventory management plays an essential role in the management of the organization’s current assets since it contributes to operational efficiency and longevity. The task of inventory management is to ensure a continuous operational process and product sales while reducing the costs associated with these inventories. Lean inventory management enables an organization to improve efficiency and enhance profits. Taking the example of Amazon’s lean inventory management, we can conclude that the implementation of this strategy can increase the company’s income. Supply chain management is an equally valid strategy for inventory management, which is a set of approaches that helps to integrate suppliers, manufacturers, distributors, and sellers.

References

Calatayud, A., Lalwani, C. & Mangan, J. (2020). Global logistics and supply chain management. Wiley.

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Kraynak, J. & Olmez, D. (2020). Selling on Amazon for dummies. Wiley.

Muller, M. (2019). Essentials of inventory management. HarperCollins Leadership.

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