In today’s rapidly evolving global market, manufacturers face complex challenges, ranging from shifting supply chains and sudden changes in demand to increasing cost pressures and market uncertainties. For manufacturing and distribution leaders, data-driven decision-making is no longer a “nice to have.” It’s critical for maintaining a company’s competitiveness, resilience and growth.

The good news is that manufacturers of all sizes have access to more data than ever. However, harnessing the data to provide integrated, meaningful and timely insights isn’t always easy. For many small and mid-size manufacturers, data-driven inventory management offers a good starting point for enhanced decision-making, process optimization and profitability.

What is data-driven inventory management?

As manufacturing and distribution companies expand, inventory management becomes increasingly complex. Manual processes and spreadsheets that worked in the past are complicated, time-consuming and error-prone. Decentralized data sources can make analysis and predictive modeling challenging.

Data-driven inventory management strategically uses data and analytics to inform and optimize inventory-related decisions and to help identify efficiency opportunities. The process involves analyzing historical data, inventory trends and patterns, and various performance metrics to determine appropriate inventory levels, purchasing and replenishment strategies. Utilizing available data, manufacturers can effectively enhance forecasting capabilities, reduce inventory carrying costs, set reorder points that factor in seasonality and optimize logistics and transportation.

The benefits of data-driven inventory management

While technology tools are available to help manufacturers and distributors eliminate manual processes and reduce guesswork, many small and mid-size businesses often put off implementing the solutions due to concerns related to cost, expertise and business interruption. Today, 41% of businesses rely on manual processes and 26% use spreadsheets for day-to-day inventory management. The key reasons cited for investing in enhanced inventory technology are inefficiency (51%), limited functionality (31%) and unreliability (7%).*

For small to mid-size companies, the good news is that there are cost-effective solutions for day-to-day inventory management systems. Consulting companies can expertly analyze the data from these systems at an affordable price point to identify opportunities and optimize inventory management.

The savings realized based on improved forecasting and reduced costs can quickly offset technology upgrades. In addition, many companies have unused technological and analytics capabilities within their inventory management and enterprise resource planning (ERP) systems that can be activated or upgraded without incurring significant costs.

The benefits of data-driven inventory management are tangible, including:

Reduced Carrying Costs

Excess inventory ties up capital and incurs significant carrying costs. On the flip side, insufficient inventory can lead to missed sales opportunities. Advanced demand forecasting based on a mix of internal data and external market information helps manufacturers and distributors strike the right balance. These insights enable companies to strategically reduce carrying costs and improve cash flows by freeing up capital previously invested in excess inventory.

Increased Productivity

Real-time insights, automated processes and advanced analytics enable informed inventory decision-making. By optimizing stock levels for raw materials, manufacturers can streamline their supply chain, monitor performance and identify potential issues before they result in production delays, work stoppages or missed deadlines. At the same time, the elimination of manual inventory data integration and reporting gives employees more time to focus on higher-skill tasks.

Supply Chain Efficiencies

In recent years, the pandemic, geopolitical tensions and natural disasters have underscored supply chain vulnerabilities. In manufacturing, the ripple effects of a supply chain breakdown are significant, resulting in production delays, work stoppages and damaged customer relationships. Data-driven supply chain mapping and risk assessment can help identify potential weak points before they become critical issues. By maintaining a real-time view of the entire supply network, manufacturers and distributors are able to make informed decisions about diversifying suppliers, building strategic inventory buffers and reducing dependency on at-risk components. At the same time, taking a data-driven approach to supplier performance canidentify opportunities to consolidate vendor relationships and reach higher-order thresholds that come with pricing discounts.

Optimized Logistics

Inefficient logistics can result in longer lead times, higher transportation costs and potential inventory imbalances, especially for companies with multiple manufacturing sites or distribution centers. Enhanced inventory management and analytics can transform logistics efficiency. For example, automated reports analyzing historical shipping data, current inventory levels and demand forecasts give manufacturers valuable insights to help optimize transportation networks, reduce costs and improve delivery performance.

Ability to Adapt & Scale

In this fast-paced environment, traditional inventory management systems often lack the flexibility to scale efficiently or respond rapidly to shifts in demand or supply, leading to missed opportunities or operational inefficiencies. Real-time inventory visibility and analytics give businesses crucial insights to inform decision-making, adapt quickly to market changes, understand shifts in market demands and take advantage of growth opportunities. For example, with improved data access and integration, companies have opportunities to enhance agility with data-driven scheduling, just-in-time inventory practices and rapid product iteration strategies.

The manufacturing and distribution industry experts at CBIZ can help you adapt and enhance data-driven inventory management practices to fit your company’s unique objectives, optimize operations and fuel growth. Connect with a member of our team and gain access to more resources here.

This article includes input from Jeff Dehart, Managing Director of CBIZ Risk Advisory Services. As a trusted industry advisor, Jeff works hand in hand with teams to identify business process opportunities to enhance operations and improve efficiency.

*Gartner Digital Markets, April 2024

	With a potential recession on the horizon, we know you want resources to help your business master the moment. We've put together our Agility & Excellence Resource Center to bring you strategies and solutions with a finger on the pulse of what's ahead.