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What Is Aggregate Inventory Management?

2021-01-28
6 min read

Learn about:

  • What aggregate inventory management is
  • The benefits of aggregate inventory management
  • How to implement this system

Managing inventory can prove tricky for suppliers and vendors, especially if they have several product lines and various retailers to deliver products to. When choosing an inventory management system, suppliers and vendors should consider an easy method for controlling product receiving and shipping inventories.

What is Aggregate Inventory Management?

A basic inventory management method, aggregate inventory management groups product items into three categories: raw materials, work-in-process (WIP), and finished goods.

For suppliers, raw materials typically include packing and shipping supplies such as boxes, filler materials, tape, and packing slips. 

Work-in-process items include products from the manufacturer that the supplier needs to sort and pack. 

Finished goods include packaged products that are ready for shipping to retailers.

By implementing aggregate inventory management, suppliers can increase or decrease inventory for one or all of these categories as a way to:

  • Maintain an adequate inventory of raw materials for shipping a specific number of finished products regularly

  • Increase or decrease the number of work-in-process products to help meet retailer demand

  • Increase or decrease the number of finished products waiting for shipment to retailers

To successfully use aggregate inventory management, vendors must understand their supply chain thoroughly to maintain accurate inventories for these categories.

What are the Benefits of Implementing Aggregate Inventory Management?

The benefits of aggregate inventory management are countless. Some of these benefits are:

  • Having real-time knowledge of items and materials on-hand to meet retailer demand such as predetermined orders and special orders (for holidays, special promotions, increased demand, etc.) 

  • Implementing cost reduction strategies in specific areas rather than across the board to cut costs only where needed. This is beneficial if a sudden decrease in product demand occurs, there is a product recall, or a manufacturer error occurs, and the product suddenly becomes scarce.

  • Controlling the flow of finished products to reduce the number of stored products waiting for shipment (unshipped products take up valuable space in a warehouse or workspace).

  • Increasing product lines to offer additional products to retailers, including new products and existing products available in varying colors, sizes, etc.

  • Building existing retailer relationships by meeting order deadlines every time. 

  • Attracting new retailers and implementing their orders into the inventory management system to grow the business. With a working inventory management system, vendors can take on new orders with confidence that they have the materials needed on-hand to fill these orders.

  • Maintaining adequate supplies to ensure products arrive safely at retailer destinations. Supply maintenance limits the need to cut corners to save money or ration packing materials until a new shipment of materials arrives.

  • Ensuring that employees have the materials needed to keep shipping lines moving without interruption, thus limiting the time employees spend looking around for the supplies they need.

This inventory management system also allows suppliers to create a stockpile of raw materials, work-in-process, and finished products if they choose. Depending on retailer demand, suppliers can determine the times of year to increase their inventory to support holiday sales and special promotions offered by retailers.

How Can I Implement an Aggregate Inventory Management System?

Suppliers can start implementing this system by first taking an inventory of existing raw materials, work-in-process products, and finished products. The next step requires suppliers to determine areas of inventory waste.

For example, while suppliers and vendors need enough raw materials to properly pack and ship products, maintaining a large inventory of boxes or rolls of tape can increase monthly or quarterly raw materials costs while taking up valuable space in a warehouse or work area.

By implementing an aggregate inventory management system, suppliers (or department managers and supervisors) can determine how many boxes and rolls of tape are needed to ship orders to retailers weekly or monthly and then order the necessary shipping supplies to cover that amount of time, making budgeting for raw materials much easier.

Suppliers and vendors should work with department managers to examine each inventory category to determine where to make changes. The goal is to supply each department with the proper number of items needed to keep the entire system moving along at a steady pace. 

As suppliers add or subtract products and retailers, they can update the inventory system to accommodate these changes.

Investing in inventory management software and updating the inventory regularly allows suppliers to know how much inventory they have to satisfy retailer demand for products.  

Failing to update inventory could result in unintended workflow interruptions. For example, shipping lines may slow down without enough raw materials needed to pack and ship products. 

Since vendor and retailer relationships depend mostly on trust, failing to meet an order deadline may cause a decrease in future orders –and affect revenues over time.

Using Aggregate Inventory Management to Help Meet Retailer Demand

Depending on the product, time of year, and varying economic situations (boom times and recessions), retail demand can change dramatically throughout the year. Retailer promotions and special deals on products can quickly result in empty store shelves if suppliers and vendors can’t ship new products fast enough. 

Suppliers must work closely with retailers to understand product ebb and flow. And even when suppliers and retailers have close working relationships, supply chain issues happen – and it’s usually up to the supplier to fix them.

With a working aggregate inventory management system in place, suppliers can quickly increase the production of finished products to meet retailer demand while placing orders with manufacturers to maintain inventory levels.

Having an organized inventory system allows suppliers to give realistic order fulfillment expectations to retailers. Providing realistic order estimates helps suppliers maintain good working relationships with retailers.  

SupplyPike’s Retail Intelligence cloud solution gathers and manages real-time inventory data that suppliers and vendors can use to develop strategies to maintain order fulfillment. 

Retail Intelligence - Store & DC Inventory

Retail Intelligence – Store & DC Inventory

Data analysis tools include Warehouse on Hand, Fill Rate, Store on Order, Store in Transit, and Sales vs. Shipping, so suppliers can easily track and manage raw materials, work-in-process, and finished product inventory groups all from their inbox. 

Conclusion

Suppliers and vendors need to know how much inventory they have on-hand every day to fill orders successfully. Inventory management systems allow suppliers to plan accordingly. 

Unfortunately, supply chains are not perfect – from manufacturer shipping errors to product defects and retailer fulfillment issues, suppliers need to be ready for any supply chain challenges that occur.

Having a thorough understanding of current inventory levels makes meeting these challenges a little bit easier. Suppliers must remain reliable and trustworthy to grow their business. Managing inventory is one way that suppliers and vendors can ensure that orders get to retailers on time.

Manage your inventory. Take a tour.

The SupplyPike Team
Meet the author

The SupplyPike Team

SupplyPike builds software to help retail suppliers fight deductions, meet compliance standards, and dig down to root cause issues in their supply chain.

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