How to Reduce Inventory Bloat with Netstock and Dynamics 365, Part 1

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Inventory management is vital for any distribution business to retain customers and remain competitive. Inventory reduction is a critical element of inventory management, especially in times of uncertainty and market changes. Controlling excess stock to balance inventory with customer demand is an art.

Netstock has the technology and expertise to help you leverage the inventory data in your Microsoft Dynamics 365 and other ERP solutions. Netstock lets you place and fill orders quicker, reduce excess stock, minimize backorders, and unlock operating capital.

What is inventory reduction?

Inventory reduction refers to paring down excess stock, so you have on hand what you need for customer orders without the costs and risks associated with storing items customers aren't buying.

Without the tools to measure and manage inventory accurately according to supply and demand, you can find yourself burdened with excess items that won't sell and are tying up space and cash.

The problem with excess inventory

Excess or surplus inventory is merchandise or stock that exceeds your current or anticipated demand for those items. Extra inventory results from overestimated demand, market fluctuations, lack of data visibility, and ineffective inventory management processes.

The primary problem with excess inventory is that it costs your business to maintain it. Capital invested in excess stock will not be readily available for other critical business needs. Tying up operating money restricts your financial flexibility and could impact your company's growth and opportunities.

There are other costs involved with excess inventory, including:

Storage costs include warehouse space, utilities, insurance, and security. These costs can take a bite out of your profits.

Obsolescence due to changing technology, customer buying trends, and expirations can leave you with unsalable products.

Reduced cash flow from money tied up in excess inventory makes it challenging to meet immediate financial obligations such as paying suppliers, overhead, and salaries.

Decreased profits result from clearance sales or markdowns required to move excess inventory.

Increased operational costs can result from inefficient processes, including procurement, storage, handling, and picking.

Inventory damage or deterioration can affect items stored over time, resulting in decreased product quality and potential waste.

Missed opportunities result from focusing on selling excess inventory rather than introducing newer or more profitable products.

Excess inventory significantly impacts your business. So, strategically reducing inventory must be a priority of your inventory management.

Unlock cash with inventory reduction in Dynamics 365

Converting inactive surplus inventory into liquid assets will reduce costs and improve overall cash flow.

Some ways to turn excess inventory into cash using Dynamics 365:

  • Offer package deals. Pair excess items with more fast-moving, profitable items.
  • Launch some promotions
  • Organize clearance sales
  • Offer excess inventory in bulk to wholesalers
  • Return surplus items to the supplier

Learn How to Reduce Excess Inventory

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Methods for Inventory Reduction using Dynamics 365 and NetStock

There will always be some extra inventory. Your goal should be to order and store additional inventory only to support a specific goal. For instance, your sales team runs a promotion, so you'll want to order more of the particular items to support the promotion. Or, maybe you know a supplier always delivers certain stock items late; you may need to request additional inventory as a buffer. However, you won't know which items to stock without visibility into your inventory data and understanding which SKUs are high-performing or which suppliers under-deliver.

Improve inventory visibility

The more visibility you have into what's happening with your inventory, the greater the opportunity to balance stock levels before they become excessive. First, you need a clear picture of all your inventory KPIs. Key Performance Indicators might include inventory fill rate and stock on hand. You need to know which SKUs need immediate attention, those that may not be moving, or those in danger of stocking out. With that level of inventory visibility, you can be proactive rather than reacting only when your cash is tied up and items are already overstocked.

With the Netstock dashboard, you can quickly see stockouts and potential stockouts. Then, you can have a focused conversation with your sales team to determine what's coming up and what you'll want to consider when ordering.

Classify your inventory in Dynamics 365

Not all your inventory items carry equal weight or contribute the same to your bottom line. You can't look at every item in every location daily. You must be able to see the top items that need attention, and that visibility is only possible once you've classified each item. There may be unique buying strategies for different items.

  1. Which items will be continuously in stock, ready for steady customer purchase? (stocked items)
  2. Which items will you only stock if there is firm demand? (non-stocked items)
  3. Which items will you never restock? (obsolete items)

Once you have classified items, you can use the Pareto Principle, which suggests focusing on 20% of the stock, yielding 80% of your sales. Classifying your inventory means ranking from the fastest to the slowest and then by high, medium, and low velocity.

For example, imagine owning an automotive parts store. Among your inventory items, you have car engines and nuts and bolts. These items sell in the same units yearly. However, they are vastly different and require unique inventory management strategies.

Car engines are high-value, low-velocity items. They are expensive and represent a significant portion of your total inventory value. You can't afford to stock an excessive number of them. They are not everyday items; they sell slowly, and extras might sit in your inventory for extended periods.

To manage car engines effectively, you must strategically forecast demand and maintain enough stock to meet anticipated sales. Also, you must consider market trends and supplier lead times to avoid overstocking and tying up capital.

Nuts and bolts, on the other hand, are low-value, high-volume items. They are inexpensive. They move quickly, and you may restock them more often than the car engines.

For nuts and bolts, the key is to ensure you always have an ample supply on hand. Running out of these items could lead to customer dissatisfaction and lost sales. You'll keep a higher safety stock level and reorder point for these items so you can meet demand without delay.

Improve inventory forecasting in Dynamics 365

Improving and fine-tuning forecasting will help you streamline inventory management, reduce inventory levels and carrying costs, and optimize your cash flow.

Forecasting activities include

  • Data analysis - Analyze historical sales data and market trends to identify seasonal fluctuations and inform ordering.
  • Team collaboration: Involve sales, marketing, and other relevant teams in forecasting. Their insights and market knowledge can help refine predictions.
  • Advanced forecasting models: Implement advanced forecasting models, such as time series analysis, moving averages, or machine learning algorithms, to improve prediction accuracy.
  • Forecasting new products: Items without sales history require manual forecasting for the first few months. Ensure the new item isn't replacing a product with a lower-cost or higher-quality alternative. If it is a replacement, link the new item to the old one, utilizing the old item's sales history for forecasting.
  • Optimizing safety stock: Fine-tune safety stock levels to prevent overstock while ensuring item availability.
  • Continuous monitoring and adjustment: Regularly monitor forecast accuracy and make necessary adjustments based on actual sales data and changing market conditions.
  • Develop various scenario plans: Consider possible future scenarios, such as market disruptions, changes in customer behavior, or supply chain interruptions. Assess how different scenarios might impact demand and adjust forecasts accordingly.

So far, we've discussed the importance of inventory reduction and how it can benefit your operation and your bottom line. We've highlighted the costs of excess inventory, how to turn excess inventory into cash, and steps to take to classify your inventory and improve forecasting.

Next, we'll discuss reducing replenishment cycles, streamlining your inventory processes, and improving overall efficiency. So stay tuned for Inventory Reduction: Unlock Operating Cash with Netstock and Dynamics 365, Part 2

Turn Dynamics ERP data into inventory intelligence

Netstock is purpose-built to integrate with all the leading ERP systems, automatically converting raw ERP data into predictive insights to drive confident decision-making. To see what Netstock can do for your inventory management, contact our experts or visit us at Netstock.com

By Netstock, netstock.com

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