Inventory management is critical to a company’s profitability, but many small businesses do not practise good inventory management when it comes to the products they sell. Some businesses have insufficient inventory, making it difficult to meet customers’ expectations by supplying enough available products. This frequently drives customers away, sometimes for good, sometimes for good.
Inventory management entails ordering, stocking, and utilising a company’s materials or products. Prioritizing your inventory allows you to understand what you need to order or manufacture more frequently in order to meet your customers’ needs on a consistent basis.
Many businesses, on the other hand, take the opposite approach, stockpiling items “just in case.” Though you’ll always have the items your customers want, the risk with this strategy is that you’ll lose money. Excess inventory not only consumes valuable cash flow, but it also increases the cost of storage and tracking. Achieving an efficient management process requires more work and planning, your profits will reflect your efforts.
Inventory Types
Raw materials are the materials used to make your products.
Unfinished goods, works in progress that are not yet ready for sale
Finished goods that are typically stored in a warehouse until they are sold or shipped
In-transit goods are those that have left the warehouse and are being transported to their final destination.
Cycle inventory refers to products that are shipped from a supplier or manufacturer to a business and then immediately sold to customers.
Anticipation inventory, or excess products purchased in anticipation of a sales
Decoupling inventory refers to parts, supplies, or products set aside in anticipation of a production slowdown or halt.
MRO goods, which stand for “maintenance, repair, and operating supplies,” aid in the manufacturing process.
Buffer inventory, also known as “safety stock,” serves as a buffer in the event of an unexpected problem or event.
Inventory Management Suggestions
1. Sort your inventory by priority.
Categorizing your inventory into priority groups will help you to understand which items you need more and more frequently, and which are important to your business but may be more expensive and move slower. Experts recommend categorising your inventory into A, B, and C groups. Items in the A category are higher-ticket items, while those in the C category are lower-cost items that sell quickly. The B category contains items that are moderately priced and move out the door more slowly than C items but faster than A items.
2. Maintain a record of all product information.
Keep track of the product information for each item in your inventory. SKUs, barcode data, suppliers, countries of origin, and lot numbers should all be included. You should also consider tracking the cost of each item over time to be aware of factors that may affect the price, such as scarcity and seasonality.
3. Conduct an inventory audit.
Some businesses conduct a full count once a year. Others conduct monthly, weekly, or even daily spot checks on their most popular items. Many people do all of the above. Make it a habit to physically count your inventory on a regular basis to ensure it corresponds to what you believe you have.
4. Examine the performance of suppliers.
An untrustworthy supplier can disrupt your inventory. If your supplier is consistently late with deliveries or consistently under-delivers, it’s time to take action. Discuss the issues with your supplier and determine the source of the problem. Prepare to switch partners or deal with uncertain stock levels and the risk of running out of inventory.
5. Follow the 80/20 inventory rule.
As a general rule, 20% of your stock accounts for 80% of your profits. Prioritize inventory management for the remaining 20% of items. You should closely monitor and understand the entire sales lifecycle of these items, including how many you sell in a week or a month. These are the items that make you the most money; don’t neglect them.
6. Maintain consistency in how you receive stock.
Making sure incoming inventory is processed may seem obvious, but do you have a standard process that everyone follows, or does each employee receiving and processing incoming stock do it differently? Small differences in how new stock is received may leave you scratching your head at the end of the month or year, wondering why your figures don’t match your purchase orders. Ensure that all employees who receive stock do so in the same manner, and that all boxes are verified, received and unpacked together, accurately counted, and checked for accuracy.
7. Keep track of sales.
You should know what items you sold and how many you sold on a daily basis, and you should keep your inventory totals up to date. However, you will also need to analyse this data. Do you know when certain items sell out or drop in price? Is it a seasonal thing? Is there a particular day in the week when you wish to sell specific items? Do certain items always sell together? Understanding not only your sales totals but also the bigger picture of how items sell is critical to keeping your inventory under control.
8. Place your own restock orders.
Some vendors will do inventory reordering for you. On the surface, this appears to be a good thing: you save money and time by delegating the process for at least a few of your items to someone else. However, keep in mind that your vendors do not share your priorities. They want to move their inventory, while you want to stock the most profitable items for your company. Take the time to go through your inventory and order restocks on all of your items.
9. Invest in inventory management software.
If your company is small enough, you can manage the first eight items on this list manually, using spreadsheets and notebooks. However, as your company grows, you’ll need to devote more time to inventory than to other aspects of the business, or risk having an out-of-control inventory. All of these tasks are made easier by good inventory management software. Before you select a software solution, ensure that you understand what you require, that it provides the analytics that are important to your business, and that it is simple to use.
10. Make use of technology that is easy to integrate.
Inventory management software isn’t the only technology that can assist you in stock management. Mobile scanners and POS systems can assist you in staying on track. Prioritize systems that work together when investing in technology. It’s not the end of the world if your POS system can’t communicate with your inventory management software, but it may cost you some extra time to transfer data from one system to another, making it easy to end up with inaccurate inventory counts.
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