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How orderly algorithms can manage your chaotic inventory

Nov 30, 2015

Inventory management is about to get easier with algorithms. These clever bits of code keep inventory organized, track social media, and keep you prepared.

Matt Mullarkey-TonerAnalyst

Keeping track of your inventory is crucial to having a business run at maximum efficiency. Luckily, as we move further into the future, the heavy lifting for inventory management is going to be done by software, or more specifically, algorithms. Although that might sound a bit techy, you’re going to be acquainted with algorithms sooner than you think.

Algorithms will optimize your inventory

At the recent Gartner Symposium Exposition, Gartner SVP of research Peter Sondergaard said that we are entering the “age of the algorithm.” What does that mean? Although he was using it to describe the bigger picture of how data will affect and improve the entire business world, it will have drastic implications on inventory management. A good example to look is India’s second largest eCommerce site called Snapdeal– you may not have heard of it, but it’s valued at 4.8 billion.

Part of the secret to Snapdeal’s success is that it relies heavily on algorithms to help users choose a product. In an interview with the Economic Times earlier this year, Snapdeal’s vice president of engineering Amitabh Misra said that 35-40 percent of their sales are driven by algorithms. Algorithms in inventory management aren’t necessarily anything new; a common example is your inventory automatically adjusting and prepping for peak sales times.

However, as Gartner research VP Ganesh Ramamoorthy notes in the article, algorithms are moving from the backend, where they primarily focused on inventory management, to the front-end where they can be used to identify user preferences and buying habits. In order to get the clearest picture of what users want, companies need to listen to them. More specifically…

It's all about social

In the past, in order to find out what your customers liked or wanted, you had limited options. There was an analysis of your sales and your inventory, trends in your industry, and getting customer feedback through surveys or questionnaires. Those are all good and fine (except for the surveys; who actually likes filling those out?) but now there are plenty of more options that factor in Facebook, Twitter, and other social networks. IT business consulting company Cognizant released a white paper entitled, “Inventory Management: How Incremental Improvements Drive Big Gains,” which gets into not only social data, but also mobile and inventory management.

The report, which is worth reading, details how companies can use social media to gauge what consumers are interested in buying and also use it to “Generate Early Warning Alarms.” For example, one of these “alarms” could be setting an alert on social media for a product that’s generating a ton of buzz. Let’s say that there’s a great new piece of clothing or toy that’s coming out that everyone is talking about on Twitter. An algorithm could take those tweets, interpret them, and start to calculate (also using geolocation) how that’s going to affect your inventory. Take it a step further, and you can have that algorithm communicate with your supply chain to prep them and automate the process even further. Conversely, it can also be used as a canary in the coal mine for product recalls.

As product recalls become more commonplace, so do their visibility on social media. Just like detecting a hot new product that you need to have, your algorithm can keep an eye on social media and the news to see if one of your products might be returned/prevented from being sold. This is exceptionally important not for financial and image reasons, but also for health concerns. However, incorporating an algorithm into your alerts reduces the likelihood of human errors.

Moving into the new age

The “age of algorithms” is still in its formative stages. There are, however, already plenty of accessible, affordable tools that can automate your inventory management to help you get a grip on your inventory and improve efficiency.

In a recent GetData study by GetApp, 55% of SMB owners that use inventory management say that they save more than five hours per week thanks to the software. 16% of these business save more than a day per week thanks to inventory management software.

GetApp’s Q3 GetRank gives you an at-a-glance view of the top inventory management software for business. This is a great place to start exploring the options available and see which inventory management app is the right one to choose to start making your business more efficient.

About the author

Matt Mullarkey-Toner

Analyst