With merchandise moving in and out of a retail store at dizzying speeds, achieving a detailed understanding of what’s in stock at every moment can feel like a Herculean task. This is where inventory visibility comes into play, allowing you to keep accurate track of your inventory levels.
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What is inventory visibility?
Inventory visibility is a retailer’s ability to track inventory across all sales channels in real time. It involves knowing exactly what products are in stock, where they are located, and in what quantity. Having access to this essential information not only benefits the retailer but also customers and suppliers; it reduces the likelihood of stockouts and helps ensure a seamless and efficient shopping experience.
Benefits of inventory visibility for businesses
From the front-end customer experience to back-end supply chain operations, inventory visibility offers a variety of benefits:
1. Avoiding stockouts
Real-time inventory visibility allows you to keep your store up to date. Knowing how quickly specific items sell out can help you determine when you need to reorder to avoid stockouts, reducing the chance you’ll disappoint customers when an item they want is unavailable.
Inventory visibility also enables customers to confirm that an item they plan to buy in a brick-and-mortar store is in stock. Since 46% of shoppers check a product’s availability online before going to a store, according to a Google report, synching inventory information between your ecommerce store and physical storefronts can help you drive more sales. It also allows you to leverage retail strategies like buy online, pick up in-store (BOPIS).
2. Efficient supply chain management
When you monitor inventory in real time, you’re better able to cut costs that might otherwise have gone unnoticed. For instance, visibility also allows you to use just-in-time (JIT) inventory management to order stock in direct response to demand. This is how apparel retailers like Levi Strauss and Urban Outfitters stayed afloat during the onset of the pandemic in 2021; thanks to inventory visibility, they were able to avoid overbuying merchandise by using a lean inventory approach, ordering exactly enough inventory to meet expected demand on a short-term basis.
3. Better trend forecasting
When you have full inventory visibility, you can make data-driven decisions. Inventory visibility provides insight into product performance and seasonal trends. When you see that demand for a product is on the rise, you can order more stock immediately. When you see that demand for a product is falling, you can reduce the amount of stock you order to avoid accumulating dead stock. This enables you to earn more money by capitalizing on trends, and it helps you minimize losses associated with storing products that may eventually depreciate into obsolescence.
4. Improved cash flow
Storing too much inventory makes your company less liquid, reducing the cash you have on hand for operational costs or expansion. Inventory visibility allows you to monitor your days inventory outstanding (DIO)—the average number of days you hold inventory before selling it. A lower DOI means you’ll have more working capital at any given time and helps you maintain adequate cash flow. You can calculate your DIO using this formula: Days Inventory Outstanding = (Value of Inventory / Cost of Goods Sold) x 365 days.
By reducing the amount of cash tied up in unsold goods, you can spend more money on higher-priority expenses, driving growth. The expenses associated with storing products before you sell them, otherwise known as carrying costs, also go down.
Challenges of implementing inventory visibility
Embracing inventory visibility and applying it to your business can be transformative. However, it isn’t without its challenges. Here’s a deeper dive into these potential hurdles:
1. Adapting to new technology
Although small to medium-sized retailers might rely on manual or semi-automated inventory tracking methods such as using spreadsheets, inventory visibility requires investment in technology. Updating your internal processes and training your team to use inventory management software can take time, but it pays off when you gain improved insight into your inventory levels at any given time.
Consider a small retail clothing store that sells both online and in physical stores. Without a centralized, real-time system, an item sold in the store might still show as available online, leading to disappointed customers and operational work to rectify. Implementing inventory visibility requires the adoption of sophisticated inventory management software that tracks stock across all sales channels and warehouses in real time.
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2. Operational changes
Incorporating an inventory visibility system isn’t just a technological shift; it also calls for significant operational changes. These changes vary depending on your business, but it generally requires that you:
- Review existing product management workflows
- Reconfigure parts of or the entire supply chain process
- Document new procedures and make them accessible to employees
Staff training is a large part of this transition too. Cultural shifts can’t happen without ensuring your staff is comfortable and familiar enough with your new systems to do their best work.
Take, for example, a traditional retail store branching out into ecommerce. To maintain inventory visibility across both domains, the business would need to integrate real-time inventory updates, establish processes for online order fulfillments, and train staff on new applications.
The cost of implementing advanced systems for inventory visibility may be substantial, posing a significant barrier to entry for many businesses. Over time, however, failure to invest in inventory visibility can be a barrier to growth.
The expenses include not just the cost of the software itself but also the potential costs of hardware (like bar code scanners or RFID tags and readers), system integration with existing sales and supply chain platforms, staff training, and ongoing system maintenance and upgrades.
While these initial costs may be significant, they should be viewed as an investment. The efficiency and accuracy gains from real-time inventory visibility pay off in the form of less waste and higher efficiency.
How to improve inventory visibility
To improve inventory visibility, businesses need a strategic approach. These are some best practices to get started:
1. Upgrade your technology
Invest in inventory management software that offers real-time tracking and comprehensive data analysis. For example, Shopify POS users can access product quantity reports that update in real time across locations.
2. Integrate your systems
Make sure your inventory management system is integrated with all sales channels (your ecommerce store, brick-and-mortar locations, pop-ups) to provide accurate, real-time information when and where you need it. A multichannel inventory management system can help you achieve inventory visibility if you sell products in multiple places.
3. Embrace automation
One of the keys to real-time inventory visibility is automation. This could include the use of technologies like bar code scanners, RFID tags, or automated data entry software to easily keep track of each unit in stock.
4. Apply data analytics
5. Run periodic audits
Even with real-time inventory tracking, occasional physical audits are important to ensure the accuracy of your inventory data. Manually counting inventory throughout the year can help you pinpoint issues like shrinkage—preventable loss of inventory caused by theft, fraud, or carelessness.
Inventory visibility FAQ
What is end-to-end inventory visibility?
End-to-end inventory visibility refers to the complete transparency of a product’s lifecycle, from procurement from the supplier to delivery to the customer.
What role does technology play in achieving inventory visibility?
Technology is the backbone of inventory visibility. Through real-time tracking and data analysis, technology enables businesses to maintain accurate inventory counts across all sales channels.
What are the three key measures of inventory?
The three key measures of inventory are turnover (how frequently you sell your products), accuracy (how closely your recorded stock matches your actual inventory), and carrying costs (how much you spend to store products before they’re sold). These measures provide insight into the efficiency of inventory management.
What’s the difference between inventory visibility and order visibility?
Inventory visibility refers to knowing the real-time status of items in your stock, while order visibility involves tracking an order from placement to delivery, offering real-time updates on its status.
Are inventory visibility and supply chain visibility the same thing?
While closely related, inventory visibility and supply chain visibility are not the same. Inventory visibility focuses on the real-time tracking of goods within a company’s control, such as in a warehouse or retail store. Supply chain visibility encompasses a broader view, tracking goods from the point of origin (supplier) to the end consumer, including transportation and logistics.