Inventory management may have been built on fundamental business concepts like supply and demand, but today, managing inventory levels is a complex interconnection of finance, sales, procurement, customer relationship management, accounting and other aspects of the enterprise. However, as with many of these areas of running a small business (SMBs), companies too frequently rely on spreadsheets and manual processes to manage the warehouse.
This isn’t necessarily an SMB-only issue, either. As mega-retailers struggle to stay competitive in an eCommerce world, inventory management technology has emerged as a critical component of their strategies. For SMBs, sophisticated technologies with integrated machine learning, robotics and automation may go too far for their needs — and are undoubtedly past their price range. Brandon Phillips, small business consultant at desktop warehouse management firm Fishbowl, says SMBs are struggling because of their continued reliance on spreadsheets — and they may not even know it.
Research about the use of inventory management technology is scarce. One report from a Bain Insights Brief highlighted the market’s accelerating adoption of newer technologies like the Internet of Things (IoT), citing inventory management as among the core areas of Industrial IoT growth through 2020.
Separate research, though, suggests small businesses struggle to jump on this train.
A 2017 survey from Wasp Barcode in its “State of Small Business Report” found nearly a fifth of SMBs use pen and paper to manage their inventory, while 21 percent rely on Excel spreadsheets (8 percent admitted that they don’t even track inventory at all). Anecdotally, the issue of relying on manual processes for inventory management paints a troubling picture. Phillips offered several stories about the pitfalls of the spreadsheet tactic.
“One of my coworkers went out to train [a new customer] and found that one employee was taking $30,000 worth of copper every month,” he told PYMNTS. “The business didn’t know because they didn’t have any control over their inventory. There are stories like this all over the place. They don’t know how much something is costing them — inventory management is crucial, even to the smallest business.”
In his personal experience, Phillips said he knows of one company that assumed one of its best-selling products was a star for the company’s performance and profits.
“But they weren’t really tracking their inventory, and while they sold millions of dollars worth of what they thought was one of their best products, it was actually one of their worst,” he recalled. “They had to pull it, because it was costing the company way more than they knew. They had no idea, because they didn’t have a clear picture of inventory.”
The financial implications of inventory management are vast. Phillips pointed to scenarios like rates of customer returns or cost of repair, both metrics that are quite difficult to pinpoint using manual processes, especially when companies need real-time insights. He emphasized the interconnectivity of inventory management into other areas of the enterprise, like procurement, logistics and accounting.
Inventory management solutions present the opportunity to integrate and exchange data with existing platforms. In Fishbowl’s case, its Boxstorm inventory management solution integrates into QuickBooks Online, enabling financial professionals to have real-time visibility into inventory levels and how they reconcile with customer orders, fulfillment and procurement levels.
The industry is quickly innovating, too, Phillips said. Barcode scanning is a mainstay in the industry, but tools like RFID (Radio-Frequency Identification), which uses radio waves to capture data on a tag connected to an object, are quickly penetrating this market. Research suggests IoT technology is also gaining traction in the space, as are robotics automation tools and blockchain, as distributed ledger technology (DLT) shifts into the broader logistics landscape.
Amid this shift, more industry players are moving to the cloud, a trend that Phillips said Fishbowl is working toward achieving, too, particularly as mobile capabilities become increasingly important for warehouse professionals. All of this innovation means heightened competition among solution providers, as well as rising costs of these solutions, which can quickly price small businesses out of the market, Phillips noted. Fishbowl’s solution to both of these issues is to offer its basic inventory management solution for free.
It’s a marketing tactic, he said, that encourages businesses to be young adopters of Fishbowl solutions, and hopefully graduate to a paid solution offered by the company. Ultimately, the main goal, is to simply get SMBs off spreadsheets.
“There are a lot of pitfalls” of relying on spreadsheets, he said. “The problem is there are a lot of small businesses that think they don’t need this technology. Some people think that spending so much money on SaaS won’t help the situation, but when you start putting inventory control in place, they start to realize how much things are costing them. You may be losing money over purchasing, or over inventory you can’t get rid of.”