Inventory management begins with a clearly defined process, although technological solutions can be helpful. You may improve your inventory management by using this guide.
A company’s prosperity depends on effective inventory management, but many small firms don’t manage the products they sell well. Some businesses cannot satisfy customers’ expectations by providing enough available products because they have insufficient inventory. This frequently pushes clients away, sometimes permanently and occasionally to another business.
However, many companies take the opposite approach and overstock inventory “just in case.” Although you’ll always have the products your customers want, this tactic risks making your company lose money. In addition to using up precious cash flow, excess inventory is more expensive to store and track.
Between these two extremes is where effective inventory management lies. While achieving an effective management process needs more effort and planning, your earnings will benefit from your efforts.
Small businesses can choose from various inventory management software packages, and which is best for your company will depend on several criteria. For instance, you should consider your budget, your business’s nature, and the services you need, such as mobile apps and cloud backup.
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Here you’ll find the 10 essential tips to effectively manage your inventory for increased profitability and cash flow management.
Categorizing your inventory into priority groups can help you understand which items you need to order more frequently and which are essential to your business but may cost more and move more slowly. Experts typically suggest segregating your inventory into A, B, and C groups. Items in the A group are higher-ticket items that you need fewer of. Items in the C category are lower-cost items that turn over quickly. The B group is what’s in between items that are moderately priced and move out the door more slowly than C items but more quickly than A items.
Make sure to keep records of the product information for items in your inventory. This information should include SKUs, barcode data, suppliers, countries of origin, and lot numbers. You might also consider tracking the cost of each item over time, so you’re aware of factors that may change the price, like scarcity and seasonality.
Some businesses do a comprehensive count once a year. Others do monthly, weekly, or even daily spot checks of their hottest items. Many do all of the above. Regardless of how often you do it, make it a point to physically count your inventory regularly to ensure it matches up with what you think you have.
An unreliable supplier can cause problems for your inventory. If you have a supplier that is habitually late with deliveries or frequently shorts an order, it’s time to take action. Discuss the issues with your supplier and find out what the problem is. Be prepared to switch partners or deal with uncertain stock levels and the possibility of running out of inventory.
Generally, 80% of your profits come from 20% of your stock. Prioritize inventory management of this 20% of items. It will help if youuunderstoodd the complete sales lifecycle of these items, including how many you sell in a week or a month, and closely monitor them. These items make you the most money; don’t fall short in managing them.
It may seem common sense to make sure incoming inventory is processed, but do you have a standard process that everyone follows, or does each employee receiving and processing incoming stock do it differently? Minor discrepancies in how a new store is taken in could leave you scratching your head at the end of the month or year, wondering why your numbers don’t align with your purchase orders. Please ensure all staff that receives stock does it the same way, and all boxes are verified, received and unpacked together, counted, and checked for accuracy.
Again, this seems like a no-brainer, but it goes beyond simply adding up sales at the end of the day. It would help if you understood, daily, what items you sold and how many and updated your inventory totals. But beyond that, you’ll need to analyze this data. Do you know when certain items sell faster or drop off? Is it seasonal? Is there a specific day of the week when you sell certain items? Do some things almost always sell together? Understanding your sales totals and the broader picture of how items sell is essential to keeping your inventory under control.
Some vendors offer to do inventory reorders for you. On the surface, this seems like a good thing – you save on staff and time by letting someone else manage the process for at least a few of your items. But remember that your vendors don’t have the same priorities you do. They are looking to move their items while you’re looking to stock the most profitable items for your business. Take the time to check inventory and order restocks of all your items yourself.
If you’re a small enough business, manually managing the first eight things on this list with spreadsheets and notebooks is doable. But as your business grows, you’ll spend more time on inventory than on your business or risk your stock getting out of control. Good inventory management software makes all these tasks easier. Before you choose a software solution, ensure you understand what you need, that it provides the analytics important to your business and that it’s easy to use.
Inventory management software isn’t the only technology that can help you manage stock. Things like mobile scanners and POS systems can help you stay on track. When investing in technology, prioritize strategies that work together. A POS system that can’t communicate with your inventory management software isn’t the world’s end. Still, it might cost you extra time to transfer the data from one system to another, making it easy to end up with inaccurate inventory counts.