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How CFOs can reduce inventory and improve profits in 2024

Thu, 7th Dec 2023

If any one word could encapsulate 2023, it would be 'uncertainty.' Many companies are still reeling from the impact of the global pandemic on their supply chains and have been left with large amounts of stock and falling demand as inflation and the rising cost of living bite.

CFOs are, of course, entrusted with the responsibility of overseeing the financial health of a company. They are keenly focused on maximising profits while minimising costs and risks. Inventory management is a critical component of this responsibility, as excess stock ties up capital and increases carrying costs, impacting the company's profitability. Simultaneously, inadequate inventory levels can lead to stockouts, affecting customer satisfaction and, consequently, revenue.

Improve inventory data

To tackle these challenges, businesses and their customers need accurate and real-time insights into inventory data. By investing in technology that is 'inventory aware', teams can see which products are selling well and where they are. This prevents 'overselling' and 'underselling', ensuring you have the right products available to customers at the right time – enabling you to sell more.

Similarly, when a company can update its inventory data quickly when goods are returned, those goods are then available to sell again much faster. Better inventory information means more inventory can be available to customers across all locations. By having a consolidated view of inventory levels, you can minimise stockouts and overstocking, optimising working capital and reducing storage costs.

Your ERP system doesn't cut it when it comes to order management

Many businesses assume that their ERP systems, combined with their e-commerce systems, can handle their inventory data and order management. After all, the process of order management encompasses the whole lifecycle of an order, from the moment the order is placed throughout the fulfilment process to the moment the invoice is settled. But as businesses grow, the complexities of various sales channels, increasing sales and fulfilment locations, as well as international growth, can strangle efficiency and productivity.

While Order Management Systems (OMS) are used exclusively for managing orders and inventory data, Enterprise Resource Planning (ERP) is designed to be a more comprehensive back-office solution with a broader range of functions, including accounting, supply chain management, HR and more. A modern flexible OMS platform can manage a wealth of data, including customer data, product information and inventory levels in order to improve visibility and transparency for businesses, customers and third-party partners.

Keep fulfilment costs low and reduce returns

Returns are a huge cost driver, and many companies resort to implementing a specific returns solution separate from their channels and/or ERP system. Whilst this can enable more customer functionality, it is often at the expense of being able to tie the returns flow directly in with the outward fulfilment, often making the customer journey disjointed. An OMS enables companies to automate and coordinate the return process to decrease cycle times and handling costs – all while simplifying the customer journey.

Similarly, companies want to reduce fulfilment costs as much as possible, and an OMS can help by providing intelligent order routing capabilities and dynamically selecting the optimal distribution centre or store to fulfil an order. Commerce and Digital teams can use this functionality to minimise shipping costs, reduce order fulfilment time, and improve customer satisfaction.

Reduce split orders and markdowns

While commerce platforms and ERP systems may let you split shipments, they lack the 'brain' of a distributed Order Management System. Fulfilling online orders from strategic locations and accessing more inventory across locations means you can reduce split orders and keep margins higher. This strategy works for seasonal markdowns, too. If you can sell more stock online or send it to other stores to fulfil (if it's not selling in that particular store), you will be keeping your in-store stock markdowns to an absolute minimum.

In the competitive landscape of modern commerce, CFOs should be leveraging real-time inventory visibility and investing in flexible modern order management systems that can help reduce stock levels, improve inventory turnover, and ultimately increase margins.

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