As a small business owner, you can only succeed when there’s a service or product to sell. And if you’re selling physical items, a poorly managed inventory can derail your business quickly.
With a well-thought inventory management process, you can keep your inventory in control instead of your inventory being in control of you.
Having efficient inventory management doesn’t just boost your businesses’ productivity but also your chances of being ahead of your competitors. Keep in mind that having the right system for your inventory equates to having zero customer complaints, an increase in customer retention, more referrals, and higher sales. While it may require additional work and systematic planning to carry through an efficient inventory management process, it would be worth the effort.
What is Inventory Management?
A part of supply chain management, inventory management aims to always have the right products with the right quantity at the right time for sale. When done properly, a business can reduce the cost of storing excess inventory while boosting sales.
Effective inventory management helps you track your business’s inventory in real-time in order to streamline the whole process. It allows you to have enough products on hand and prevent products from being out of stock while avoiding funds from being tied up in your excess stock.
It also helps you ensure that items are sold in time to avoid stocks being outdated or spoiled. Likewise, it prevents overspending on too many stocks that are taking up space in your warehouse.
That said, let’s take a look at some helpful tips and techniques on how to properly manage your business inventory:
1. Leverage Technologies
The first step towards an organized and well-maintained inventory is to leverage existing technologies that can streamline the processes.
The right inventory tracking solution can help you remove the manual and error-prone labor of tracking inventory on paper. It allows you to track all of your stocks in every warehouse you have.
If you have multiple storage rooms or warehouses, you can complement it with a good warehouse management system. It helps in tracking where each type of stock is placed within a warehouse.
An inventory tracking solution should also sync seamlessly with your business’s stock-keeping units (SKU). This allows you to effortlessly track inventory between your online store and physical location. This is usually achieved with an online order system and a barcode scanner.
If you’re a manufacturing business, a BOM management tool can help you in managing and controlling their bill of materials (BOM), real-time part inventory, and production of job orders.
These are just some of the technologies you’ll need. Make sure to research the software platforms that are most suited for your business needs. You can start by checking out different review websites to check on a particular software you’re eyeing.
2. Use FIFO
First-in, first-out (FIFO) follows the principle that products should be sold in the same chronological order as they were created or purchased. This is particularly important for perishable goods such as food and plants.
For instance, in a restaurant, chefs have to be cognizant of the materials behind the bar and use the FIFO approach to improve restaurant inventory. While it’s often used for perishable goods, it’s also a good idea to use it for nonperishable items since sitting around for too long may cause damage or become out of date and unsellable.
Using the FIFO approach, you need to organize your warehouse slotting process to get your oldest inventory closest to your loading dock, making it easier to pick and pack.
3. Know Your ABCs
ABC analysis is used in both warehouse slotting and inventory management. This method divides your inventory into 3 categories.
Items here are of top priority to your business. These items are the one that drives the most profit— indirectly or directly. This includes the raw materials since these items are essential in creating your products, as well as the ones that you can’t afford to run out of.
The B items are not as valuable as those in A but are still important. These items could be the less-used or less-expensive raw materials, or items that don’t sell as often.
These items are worth very little, but they still serve a role in your business’s success. Item C could be the finished products or the inexpensive raw material. Most businesses will likely have a lot of C items, but their actual value is low.
The point of ABC analysis is maximizing your inventory, The goal is to make the fastest-moving items move even faster or to make the most profitable items even more profitable. ABC analysis allows you to do this.
4. Do Regular Auditing
Inventory reconciliation is critical. In most cases, this is easy with reports and analysis from your inventory and warehouse management system. That said, you need to make sure that the facts match up.
For reliable assurance, you can do this in 2 ways:
- Physical Inventory Counting
This practice means to manually count all your inventory at once. Most businesses do this every year-end since it ties in with the accounting season and filing of income tax. While you can do this once a year, it can be time-consuming and tedious if you find a discrepancy and try to pinpoint the issue when looking back at the entire year.
- Cycle Counting
Instead of doing full physical inventory in one go, you can use cycle counting to audit your inventory. Cycle counting spread reconciliation throughout the year. Each month, week, or day, a different product is checked on a rotating schedule.
5. Practice Accurate Forecasting
One of the key elements of good inventory management is accurate forecasting. Inventory managers use data to track usage— including market trends, a record of historical sales, and seasonality to make well-informed decisions.
The ability to forecast demand accurately can play a critical role in managing your inventory expenses and increasing sales opportunities. Part of this data is generated through your software solution. However, you should also consider other factors such as the health of the economy, weather, shifts in demand, and more.
Managing your business inventory may not be the most exciting activity, but it is one of the most crucial processes that contribute to your business’s success. With the above tips, you can maintain good inventory management practices that can help you gain control over your business stocks and cash flow.