Ordering and Inventory Management

Having products available when customers want to make purchases may seem like a relatively straightforward process. All a seller needs to do is make sure there is product (i.e., inventory) in their possession and ready for the customer to purchase. Unfortunately, being prepared for customer purchasing is not always easy. Having the right product available when the customer is ready to buy requires a highly coordinated effort involving order entry and processing systems, forecasting techniques, customer knowledge, strong channel relationships, and efficiency at physically handling products.

Order Entry and Processing

The marketer must have a system allowing customers to easily place orders. This system can be as simple as a consumer walking to the counter of small food stand to purchase a few vegetables or as complicated as automated computer systems, where an electronic order is triggered from a retailer to their suppliers (e.g., manufacturer, wholesaler) each time a consumer purchases a product at the retailer’s store. In either case, the order processing system must be able to meet the purchasing needs of the customer. In some cases, an efficient ordering system can be turned into a competitive advantage. For example, several companies now offer easy voice ordering options as part of their smart speaker technology products.

Demand Forecasting

Inventory management is often an exercise in predicting how customers will respond in the future. By predicting purchase behavior, the marketer can respond by making sure the right amount of product is available. For most large-scale resellers, effective inventory forecasting requires the use of sophisticated statistical tools.  These tools take into consideration many variables, such as past purchase history, amount of promotional effort that triggers an increase in customer ordering and other market criteria to determine how much of the product will be needed to meet customer demand.

Customer Knowledge

Inventory management can be fine-tuned to respond to customers’ needs. As a marketer learns more about a customer, they begin to observe trends in how and when purchases are made. Combining customer knowledge with forecasting techniques allows the marketer to better estimate product demand and inventory requirements. As we discussed in the Managing Customer Tutorial, the key to understanding customers is to have in place a customer relationship management (CRM) system for tracking and analyzing customer information in order to identify patterns in customer activity.

Channel Relationships

While marketers using channel members to sell consumer products have access to information for their immediate customers (e.g., resellers), they often do not have access to sales and customer behavior information controlled by the party selling to the final consumer (e.g., retailer). Knowing the demand patterns at the final consumer level can give marketers good insight into how the reseller may order. Developing strong relationships with the holder of consumer information can result in the reseller sharing this information with the marketer. In fact, as we noted in the Distribution Decisions Tutorial, some retailers allow marketers direct access to real-time, store-level inventory information so the marketer can monitor how products are selling in stores and be in a position to respond quickly if inventory needs change.

Physical Product Handling

An often overlooked area of inventory management involves the actions and skills needed to prepare a product to move from one point to another. Some products require special attention be given to ensure the product is not damaged during shipment. Such efforts must be carefully balanced against increased costs that arise (e.g., need for stronger packaging) in order to provide greater protection to products. Because of this, many marketers will accept the fact that some small level of damage to occur during the distribution process.