In order to run your business smoothly, you must know how to manage inventory levels properly. Inventory management is the part of the supply chain that involves overseeing the flow of products in and out of your organization to ensure that the stock is used efficiently and effectively.
Not having a well-functioning system may disturb the execution of orders and day-to-day business. Thus, having an effective inventory management system is crucial for your business’s profitability by helping you keep the stock costs under control while maximizing sales.
Many small businesses don’t practice good management when it comes to inventory simply because they feel like they don’t have enough resources for it.
However, it’s important to find the right balance between understocking and overstocking to supply products that meet customer demand and expectations. An efficient management process may require more work and planning but is a vital component for the success of your business.
Here are some inventory management tips that will help your business.
Audit your Stock
No matter which technique you use, it’s vital to periodically do a comprehensive count of your inventory. Businesses either do annual, monthly, weekly, or even daily spot-checking to ensure that their actual stock matches the number of items they think they have. Regardless of how often you choose to do it, physically counting every single item should be the goal of your business.
Perform ABC Analysis
The first step is to identify items that have a high impact on inventory cost and the products that have a greater demand and help earn more profits. By evaluating your inventory list, you can limit the items that don’t sell that much, which will help to reduce overhead costs. For this, you need to split your inventory items into priority groups like A, B, and C.
The first category A should include the most valuable items that are fewer in number, and the second should consist of items that have a moderate value and fall between the other two groups.
Finally, the third group should have items that are highest in number but contribute the least to your company’s profit. Thus, this technique of classifying and analyzing items according to their consumption value will help control costs.
Another critical step that can help you keep your inventory under control is reviewing and analyzing your sales data. This does not mean that you simply add up sales but rather evaluate which items got sold and in what quantity.
Furthermore, you need to notice how frequently these products are sold and during what time. It’s possible that certain items sell more quickly than others. Thus, understanding and gaining insight into how items sell will help you better manage your inventory and prevent losses.
Use the FIFO Approach
FIFO is a cost method that relies on transaction dates. Implementing this system and timely posting of inventory transactions can help to improve inventory management. Additionally, FIFO or First in, First out assumes that older products are sold first before they expire or become obsolete.
Applying this method is a good idea for dealing with perishable goods like food, flowers, or makeup, or even if your inventory has nonperishable items since they can also get outdated or damaged over time. Thus, timing is key in effectively managing your inventory items.
Manually managing your inventory through spreadsheets and notebooks may be possible for small businesses. However, as a business grows, it becomes important to invest in technology to make all the tasks easier for you. For this, you could either design an inventory management database or purchase an inventory software with real-time analytics that is important for your business.
Before choosing a software solution, make sure you select the one that’s easy to use and enables you to customize the database to fit your individual needs. It’ll save you the time you spend on your inventory by automatically tracking the availability of items and generating orders for the most selling products.
Suppliers also play an essential role in making your stock-based business run smoothly; thus, it’s vital to manage supplier relationships as well. Working collaboratively and transparently with your business’ key supplier can help you develop constructive relationships to secure reliable supply.
Additionally, an unreliable supplier who is late or short on delivering orders can cause problems for your inventory and slow down the rest of the process. Thus, it’s important to analyze your supplier’s performance as well as engage with them to understand the emerging trends.
Identify and Retire Low-Turn Stock
Your inventory might have items that haven’t been sold in a long time. Thus, you should stop stocking those items and also get rid of the existing stock. By clearing out this excess stock, you’ll get more space in your warehouse as well as free up space for displaying other items. For selling the stock, you might consider using different strategies such as a special discount or promotion.
By adopting the dropshipping method, you’ll be able to sell products without keeping them in stock. This method outsources all aspects of managing the inventory yourself. This is because when your store makes a sale, you’ll purchase that product from a third party like a wholesaler or manufacturer and they’ll be responsible for shipping it to the consumer.
Although any type of business can use this strategy, adopting this can prove to be extremely useful, especially if you run an online store since you won’t have to worry about inventory storage and management.
For a business that is based around selling products, inventory management is crucial to keep your customers satisfied and make your business grow. It can also help to eliminate any inefficiencies that can reduce costs and boost sales in return.
Thus, maintaining your inventory levels will not only help to keep your budget on track but ensure that you have the right amount of product to avoid stockouts or excess stock. However, if you have a large business and find it impossible to handle the inventory on your own, you could always consider using an outside inventory management agency.