Inventory management: what it is and how to optimise it to increase your profits

Effective inventory management controls are essential for running a profitable business. They help you keep a tight hold on your room availability levels so that you are prepared for anticipated occupancy levels and demand fluctuations. They are also a vital tool for creating a dynamic pricing strategy that attracts high-value guests to your hotel. 

In this post, we are going to discuss what inventory management is and what measures you need to follow in order to optimise your inventory management process and increase your overall profits. 

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What is inventory management?

Hotel inventory management is the number and types of hotel rooms that are available for distribution through your sales channels. Inventory management allows you to control what types of rooms you have, and how many of them you are able to sell to a particular market or through a specific distribution channel.

Inventory management is an important aspect of revenue management. When done effectively, it helps you both create and manage demand so that you can sell your rooms at optimised prices and maximise your returns. And this is one of the keys to being a successful hotel manager. 

Although inventory management has traditionally been focused exclusively on room availability, these days, many hotels are using more of a total profitability approach. This is because your occupancy levels don’t just affect your ADR; they also have an impact on other operations in your hotel, including F&B, laundry, housekeeping, and your ancillary services. Without a proper system in place for inventory management, you could be left understaffed and unable to cater to your guests’ needs. 

How to control your inventory

As we just discussed, it’s important to have a robust inventory management system in place so that you know what your occupancy levels are (and will be) at any given moment. This will help you optimise your room and ancillary pricing strategies and boost your occupancy levels. It will also ensure all your staff are prepared in the event of demand fluctuations.

Make sure your inventory management process includes the following key elements.

Define it

The first step in your inventory management process is defining it. Start by dividing your rooms into groups that can be differentiated, then identify the features of each category (type of bed, size, views, etc) and the number of corresponding rooms. The more you differentiate, the more you can optimise your revenue. However, you should be mindful that if you create too many categories it can complicate your operations and raise costs. The key is finding the right balance. 

It’s also a good idea to clearly categorise your ancillary revenue streams. This is everything ranging from your hotel bar and restaurants, room minibars, concierge services, in-room entertainment, spa, and function rooms, to name a few. This is important because if staffing and stock inventory levels don’t align with your anticipated demand then it could leave guests disappointed and impact their overall experience. 

Consider category overbooking

A high number of cancellations can have a negative impact on your room inventory levels. This is especially true in the case of last-minute cancellations and no-shows, as you don’t have time to re-sell a room to another paying guest. 

Although cancellations are an inevitable part of the business, there are strategies that can help you redress the balance and recover some of your losses. One such strategy is category overbooking. This is where you sell more rooms than are actually available, anticipating that some bookings will be cancelled. 

If you decide to implement this strategy, decide how many rooms from each category you will oversell and then distribute them to your sales channels.

Use hybrid inventory when possible

Another effective inventory management strategy is using hybrid inventory. This is a useful tactic for overcoming demand uncertainty, and, unsurprisingly, it grew in popularity during the Covid-19 pandemic and the resulting impact on the tourism and hospitality sectors. 

The aim is to ensure that your resources and assets are used more efficiently by repurposing them. For example, instead of focusing all your marketing efforts on attracting tourists to your hotel and optimising your lead time, you could target your local community with promotional campaigns relating to your functions and events facilities or your gym and health spa. 

You should aim to use hybrid inventory whenever possible in order to keep your inventory levels high and maximise your revenue streams.

Track performance

Make sure you regularly track the performance of each of your room categories to see which is attracting the highest level of demand and contributing the most to your total revenue rate. Also, make sure that you treat each category as independent so that you gain a fuller understanding of which room types are having a positive and negative impact on your inventory levels.

Don’t forget about costs

It’s also important to include all your expenses when you calculate your room costs. This will help you develop a more accurate reflection of the cost of an empty bed. Make sure you account for fixed costs (utilities, overhead expenses, OTAs, payroll, etc) and variable costs (laundry, housekeeping, minibars, and F&B, for example). 

Keeping firm control over your costs will help you accurately price your rooms during high and low-demand periods.

Rely on software and AI

Finally, make sure you rely on the right software and AI tools to handle every stage of your inventory management process. This will help you better manage your data so that you can optimise your prices and create more flexible inventory management strategies.

For example, BEONx’s inventory management software can be specifically configured to the unique requirements of your hotel’s rate structures. Whether you work with dynamic prices, open prices, or indexed rates, you can adapt the platform to your specific workflows. This enables you to access the data you need to optimise your inventory management processes and offer the right rates to boost your occupancy levels and increase inventory sales.

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