Technology in Inventory Management (AQA A Level Business): Revision Note

The value of technology in inventory management

• Investing in technology to manage inventory offers a business several important benefits beyond simply tracking stock

Benefits of technology in inventory management

Improves the accuracy of stock records

• Reduces the errors that come with manual stocktaking

• Gives managers reliable information to base decisions on

Saves staff time

• Automating tasks such as stocktaking, reordering and tracking frees up employees to focus on other areas of the business

Reduces the risk of stockouts

• Real-time tracking and automated reordering help ensure popular items are reordered before they run out

Reduces the cost of holding excess inventory

• More accurate forecasting and monitoring help avoid over-ordering stock that ties up cash and storage space

Improves a business's ability to respond quickly to changes in demand

• Technology can flag up unusual sales patterns far faster than manual monitoring

Example

A clothing retailer's inventory system flags a sudden spike in sales of a raincoat range during an unexpected spell of wet weather, alerting managers early enough to reorder extra stock from suppliers before shelves sell out completely

Supports better decision-making

• Managers gain access to detailed, real-time data on stock performance across the whole business

Can improve customer satisfaction

• Accurate stock levels reduce the chance of customers being unable to buy an item shown as available

Helps a business remain competitive

• Rivals using similar technology may be able to operate more efficiently

• Failing to adopt it can leave a business at a cost or service disadvantage

Ways technology is used in inventory management

• Technology now plays a central role in how businesses, especially large ones, manage their stock

• A range of tools can track, control and predict inventory more accurately than manual methods

Barcode and RFID scanning

• Using these tools, businesses can track exactly what stock they hold far more quickly and accurately than counting stock manually

Advantages of barcode and RFID scanning

• Speeds up stocktaking significantly, as RFID in particular can scan many items at once rather than one at a time

• Reduces human error in recording stock levels, improving the accuracy of inventory records

• Provides real-time visibility of stock, helping a business reorder at the right time and avoid running out

Disadvantages of barcode and RFID scanning

• RFID tags and scanning equipment are more expensive to install than traditional barcodes, particularly for a large or complex range of products

• Systems can fail or give inaccurate readings if tags are damaged, blocked, or not properly attached

• Staff need training to use scanning equipment and software correctly, adding to setup costs and time

Example

Fashion retailer Zara fits RFID tags to its clothing, allowing staff to scan entire rails of stock in seconds and giving the business accurate, real-time information on inventory levels across its stores

Inventory management software

• Inventory management software is a computer system that records, tracks and reports on stock levels, locations and movements across a business, often in real time

  • This replaces manual record-keeping, such as spreadsheets or paper logs, with a system that automatically updates as items are sold, received or moved

Advantages of inventory management software

• Gives managers an accurate, up-to-date picture of stock levels at any time, supporting better decision-making

• Can be linked across multiple sites or stores, allowing a business to see and move stock between them as needed

• Reduces the time staff spend manually counting stock, freeing them up for other tasks

Disadvantages of inventory management software

• Can be expensive to purchase, install and integrate with a business's other systems

• Relies on accurate data entry elsewhere in the business

  • Errors at the point of sale or delivery can lead to inaccurate stock records

• System failures or downtime can disrupt a business's ability to track stock accurately until the issue is fixed

Example

Argos uses inventory management software that gives real-time visibility of stock levels across its stores and online, allowing customers to check whether an item is available at their local store before travelling to collect it

The software also helps Argos manage stock accurately across its whole network of stores and warehouses

Automated stock replenishment

• Automated stock replenishment means using software to automatically generate a new order with a supplier once stock of a product falls below a set level

  • This is often linked to connected cash registers or sales data, so the system can respond quickly to actual changes in demand

Advantages of automated stock replenishment

• Reduces the risk of running out of stock, as reordering happens automatically rather than relying on staff noticing low stock

• Saves staff time, as orders don't need to be manually checked and placed for every product

• Can help smooth ordering processes, avoiding the sudden large orders that can result from stock being checked infrequently

Disadvantages of automated stock replenishment

• Can lead to overstocking or a build-up of unwanted inventory if the reorder level or forecasted demand is set incorrectly

• Relies on accurate underlying data

  • Errors elsewhere in the system can lead to poor reordering decisions

• Reduces human oversight, meaning unusual situations, such as a sudden trend or a supplier issue, may not be noticed as quickly

Example

Sainsbury's uses automated ordering systems linked to till data, generating a new supplier order automatically once stock of a product falls below a set threshold

Warehouse automation and robotics

• Warehouse automation uses machinery, conveyor systems or robots to move, sort or store stock within a warehouse, reducing the need for manual handling

  • This can range from automated conveyor belts sorting items, to robots that retrieve and transport stock to human pickers

Advantages of warehouse automation and robotics

• Increases the speed and accuracy of picking and moving stock, compared with manual methods

• Reduces labour costs over time, as fewer staff are needed to physically move stock around a warehouse

• Can operate for longer hours than staff, increasing a warehouse's overall capacity

Disadvantages of warehouse automation and robotics

• Requires a large upfront investment in machinery, robotics and the technology to run them

• Can be costly and complex to repair or maintain if equipment breaks down

• May reduce the number of warehouse jobs available, which can affect staff morale and create negative publicity

Example

Amazon uses thousands of moving robots in its fulfilment centres to carry shelves of stock to human pickers, reducing the time and walking needed to locate and retrieve items

AI-powered demand forecasting

• AI-powered demand forecasting uses artificial intelligence to analyse data, such as past sales, seasonal trends or even external factors like weather, to predict future customer demand more accurately

  • This helps a business decide how much stock to hold and when to reorder, rather than relying on manual estimates or simple historical averages

Advantages of AI-powered demand forecasting

• Can improve the accuracy of stock ordering, reducing both stockouts and excess inventory

• Learns and improves over time as it processes more data, potentially becoming more accurate than human forecasting

• Can process far more data, and more quickly, than a person could manually, including unusual patterns a human might miss

Disadvantages of AI-powered demand forecasting

• AI systems can be expensive to develop and install, particularly for smaller businesses, and usually require staff to be trained to use them

• Forecasts are only as good as the data used; poor-quality or incomplete data can lead to inaccurate predictions

• Sudden, unpredictable events, such as a supply shock or unexpected trend, may not be well anticipated by a system trained mainly on past patterns

Example

Ocado, the online grocery retailer, uses artificial intelligence to predict how much of each product it will sell, generating millions of forecasts every day.

This helps Ocado order the right amount of stock, particularly for perishable fresh food.

Ocado says its AI system is around 40% more accurate than the methods retailers used before, helping it waste far less food while still keeping popular items in stock