Why Inventory Should be Digital
Understanding traditional vs digital inventory systems and why you may want to transition.
Managing inventory effectively critical for any business to thrive and be successful. If a business fails to do this, it can cause issues with stock levels, labor costs, and other costly issues. In this article, we learn the difference between traditional and digital inventory management. Additionally, we will explore why digital is beneficial over traditional inventory management.
What is digital inventory?
Digital inventory is the tracking of goods, materials, or merchandise electronically through computer software. The term “digital” simply refers to the 0’s and 1’s that computers use to process and store information. “Inventory” is any goods, merchandise, or stock held by a business.
How are digital and traditional inventory different?
Traditional inventory manually tracks materials through a spreadsheet or paper. A human must update data when a change such as a sale or shipment occurs. By contrast, digital inventory requires no human input as a fully automated system.
Because of these differences, internal processes of warehouse teams are also distinct. Under traditional inventory management, employees must follow a strict process for recording information. If they fail to do so, it can have catastrophic results on the regular flow of business. With the digital method, however, the requirement of process and controls is less important. This is because human involvement in the management is on a higher level.
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Challenges With Traditional Inventory
Everything in life comes with advantages and disadvantages. This is also true with the type of inventory management system you choose. However, when comparing traditional vs. digital inventory management, I think you will see that the benefits for digital outweigh the traditional.
Prone to Human Error
Any time a human interacts with data or process, there will be errors. While some people may be more accurate than others, no one is perfect. Strong process and procedure rules can greatly reduce these errors. However, completely eliminating human error is impossible. Therefore, digital inventory tools offer a large value in this regard.
In business, often times the fastest wins. While not always the case, it is generally true that if you are faster than your competition, you have a big advantage. Traditional inventory requires a human to manually track inventory and make adjustments. This results in a drastic increase in time required for each process when compared to digital inventory management.
Less Visible Inventory Data
Under traditional inventory, answering basic questions such as “how many days has product ‘ABC’ been on the shelf?” can be difficult. That is because it requires a person to gather all the required data points, then organize them into a readable format. As the complexity of the request increases, so does the time required to complete the task. If you run a substantial pick pack and ship operation, manual tracking of inventory is detrimental to smooth operations. Certain complex analytics may be entirely impossible under the traditional inventory model.
More Labor Intensive
Objections to the cost of moving to a digital inventory system may seem justified. However, business owners should not ignore the labor costs associated with a traditional inventory system. Because each task requires a greater amount of human processing, traditional methods can be more costly than digital ones. This is especially true with larger warehouses that have a large customer base and high SKU count.
Account for the cost of labor allotted to inventory tracking and analytics and compare that to the cost of a digital system. The result of this analysis will show you the true cost or savings of a digital inventory management system.
No Cross Channel Communication
Cross channel communication is any type of system that can share data with another system. An example of this is electronically submitting orders from an ecommerce site to a fulfillment center. Another example is ERP systems that manage multiple warehouses in different locations.
The challenge to cross channel communication for traditional inventory systems should be obvious. Because warehouse data is stored in a silo (not connected to anything) it is unable to integrate with other systems.
Digital systems ease inventory decisions
Because of the lack of readily available data (as discussed above) traditional inventory suffers from a difficult decision making process. Imagine the time required to answer questions like “what is the average storage cost of my SKUs over the last year”. Digital systems manage, interpret, and present vast data sets instantaneously. This means that questions like these can be answered with just a few clicks.
While some user interfaces are better than others, any digital inventory management system has analytics available to answer complex questions on the fly. Another example question may be, “what is the average cycle time for SKU number XYZ”. Again, with only a few clicks a digital inventory system can answer this question. You can see how a digital system can drastically improve the decision making process for inventory related questions.
Digital Inventory in Real Time
Real time data is the time that it takes for information to reflect the actual state whatever it is tracking. Specific to warehousing and inventory, that means inventory levels and other electronically stored information update automatically to reflect real world data. Therefore, when an inventory change occurs, it automatically records that change.
Another aspect of this to the time that it takes for a user to receive requested data. In the traditional inventory model this could take minutes, hours, or even days. In the digital model however, updates are instantaneous. This is because the software simply has to make a request and electronically interpret the information. This becomes even more advantageous when 3PL providers assign customers a login portal. Such logins allow the customer to directly view inventory levels or other information without making a request to the 3PL. In this way, the data is real time even for the customer.
Ecommerce Benefits from Digital Inventory Management
One of the main benefits to a digital inventory system for ecommerce is cross channel communication options (as mentioned before). At AMS, we are able to offer customers with an electronic order entry system through our 3PL software. This means that orders placed on the customer’s ecommerce systems are automatically transferred to our fulfillment software. Examples of ecommerce systems include Shopify, Woocommerce, and Wix among others. This reduces errors but also reduces line-item costs since labor is not involved with order entry.
This means that orders placed on the customer’s ecommerce systems are automatically transferred to our fulfillment software.
Another way this cross communication is helpful is through the return of data back to the ecommerce platform. Inventory levels, shipping and tracking information, and order status can all transfer electronically back to the ecommerce platform. This is valuable because the more information that customers have, the more satisfied they are with the process.
One advantage that a turn-key supplier has with a combination of digital inventory and ecommerce brands is inventory reordering. At AMS, we offer a VMI (vendor managed inventory) service. This means that we control your stocking levels with an open PO. This can be based on a forecast, or at regular stocking levels based on your cushion stock requirements. The real benefit here is that stocking isn’t overlooked due to human error. Orders are automatically generated at trigger points in the software so the risk of a stock out is greatly minimized.
How to Transition to a Digital Inventory System
Now that you know the benefits to digital inventory systems, the next question is “how do I make the change”. Here are some considerations that you should make when switching your system.
1. Determine if digital inventory is right for you
Just because there are benefits galore to a digital inventory system doesn’t mean it’s right for you. That’s because after analyzing your costs you may discover you aren’t ready for the expenditure yet. There’s nothing wrong with that decision. What’s important is that you do the analysis, not make a blanket decision. However, when you are making the decision, remember not to leave out the intangible costs of a traditional inventory system.
2. Determine which features you need the most
There are quite a few different digital inventory software providers. Not all of them are the same or offer the same capabilities. You need to understand your business needs to determine which option is the best fit. For example, you may not do any ecommerce business and don’t plan to in the future. Therefore, a solution that heavily emphasizes ecommerce features may not fit well with your business. Look for a solution that focuses on ease of use or analytics that may be preferable to your teams.
3. Ensure your digital inventory partner has ample support
There’s little benefit in switching to a new system if that system cannot be properly utilized. When considering digital inventory software providers, ensure your choice offers a good support or training program. Additionally, make certain support programs are available at your price level. Some software providers offer this service, but only to customers on higher tier payment plans, or even at additional cost.
4. Understand all the costs
When you compare the various software provider’s options, make sure you understand the varying ways they charge for their service. Some charge a basic flat fee, while others charge based on the number of transactions per month. Alternatively, others may combine these two methods. You need to know what kind of services your business will need so you can decide accordingly.
Hopefully this article has helped you understand digital and traditional inventory management systems. You should now have a good knowledge base to make a decision to switch to digital or not.
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