Inventory management may seem simple on the surface – how many products do we sell and have in stock? It’s more complex than that. Inventory management includes accounting for your products, raw materials used to manufacture those products, and other supplies that keep your business going.
Inventory management involves more than just a simple accounting of the current situation. It also includes predicting future conditions so that an organization can be sure to have enough raw materials, products and supplies on hand to meet demand. You’ll waste valuable resources if you carry too much inventory. If you carry too little inventory, you may lose money due to lost sales.
Businesses can save money and time by using effective inventory management systems. Inventory management systems automate some processes, track incoming and departed goods and services accurately, and provide real-time information needed for purchasing and product development. Additionally, inventory management services offer further support in optimizing stock control and streamlining operations.
What is Inventory Management?
Inventory management is concerned with how much stock you need to order, and when. Inventory management involves the tracking of stock from its creation or purchase to its sale.
You can plan and manage inventory in many different ways, depending on your business and product needs. Pull strategy: based on demand from customers, you place small orders of inventory when needed. Push strategy relies on forecasting, and is based upon expected or predicted demand. Just-in-time strategies produce products when they are ordered. The type of company, industry and inventory strategy will determine the strategy.
Why Is Inventory Management So Important For Small Businesses?
All businesses need to keep track of their inventory in order to manage costs and to ensure that they have enough products to satisfy customer demand. Inventory management can help businesses save money and increase cash flow.
If you buy raw materials or products that are stacked on the shelves, the dollar invested in these materials will not be recouped. Having insufficient inventory to meet demand from customers can lead to lost sales.
Inventory Management Tips for Small Businesses
Inventory management for small business must be accurate, efficient and reliable. We look at 17 tips to help small businesses manage their inventory.
1. Choose the right inventory method for your business
Most likely, there is an inventory system that will work best for you. First-in, first-out (FIFO), is a strategy that would be used by a company that sells perishable products, like food or flowers. The oldest materials and products are the first to be depleted by this strategy.
FIFO is a standard inventory method that most businesses use. Using FIFO for inventory management is a common tip for business owners for a good reason: It can make a huge difference to your bottom line.
2. Understanding and accurately forecasting demand
Accurate forecasting is a key element of inventory management. Inventory managers use data to track usage. This includes historical sales data, market trends, seasonality, and technologies like predictive analytics that help managers make informed decisions. Inventory managers also need to consider factors like weather, economic health, changes in demand, and more.
Accurate demand forecasting can be a key factor in maximizing sales and managing inventory costs.
3. Low-Turn stock identification
Inventory managers can adjust production output by identifying products which are no longer in high demand.
If, for example, your inventory management software identifies that a certain supply is lingering on the shelves, it may indicate that the demand for that product has decreased or that additional promotional efforts are required to increase awareness and demand. Businesses can increase their chances of selling slow-moving inventory by identifying it early. Some tactics include a special offer, moving the stock to an area where it will sell faster or selling to a third-party.
4. Track Stock Levels
Inventory managers can fine-tune ordering processes by tracking how many of a specific item is on hand, whether it’s used for product development or as a representation of goods to be sold to customers. A well-documented, consistent inventory cycle counting can minimize errors which may affect stock availability and accessibility. Inventory managers can be alerted to the need for additional stock by integrating automatic reminders into your inventory management system. Tracking stock helps monitor and manage product demand.
5. Stock levels are being monitored
Your inventory management system should be accurate. To ensure accuracy, you need to combine the right software with the right policies and procedures. It is possible that the levels displayed in your inventory software do not match exactly what you actually have. The closer the levels match, the more confident you will be in your inventory management.
Inventory levels are affected by a variety of factors. These include damage, theft and incorrect stock receipt. Regular cycle counting can help you identify errors in data entry and potential waste.
6. Just-in Time When Possible
Just-in-time inventory management (JIT) is used by some companies to minimize the amount of stock on hand and reduce operating costs. Inventory managers work closely together with suppliers to ensure raw materials are delivered in time for production but not earlier than is necessary. The goal is to keep as little inventory as possible, but still enough to meet demand.
JIT inventory management is a complex inventory management system. It must be able to process orders quickly and track all the details, so that you can fulfill orders immediately.
7. Concentrate on Quality Control
In the process of inventory management, quality control should be a priority. Businesses must implement quality checks throughout the lifecycle of the product to reduce waste and make sure it meets the standards. It is important to integrate quality control into all aspects of inventory management and document the key elements of quality control such as correct ordering and invoice matching. Also, it’s important that every employee adheres to and understands the processes.
A list of small business inventory management tips would not be complete if it did not include creating and maintaining a quality-focused culture for every step of the inventory process, from ordering through to receiving and picking. This culture should start at the top, and be incorporated into all policies and procedures. Ask your employees how they perceive the company’s culture in relation to quality. Set goals for improvement after establishing baselines across all indicators such as customer feedback and returns, or other key performance indicators in inventory management. Consider individual areas as well as metrics for the entire company and communicate progress when you reach milestones.
8. Consider Drop Shipping
Drop shipping allows suppliers to ship directly from their warehouses, eliminating the need for the customer to maintain inventory and the associated costs. You’re responsible for marketing and sales of the product, not controlling every aspect of its lifecycle.
Your profit is the difference between wholesale and retail prices, minus marketing and sales costs. To ensure product quality, it’s important to establish a solid relationship with a drop-shipping company. You also need the right inventory software to manage and monitor transactions.
9. Install a POS
Point-of sale (POS) software can help you track your inventory and stock in real time. Your software updates automatically when items are sold to reflect inventory levels and cost of goods. POS technology can be used to track raw materials and supplies as they are consumed, or it can also be used during the manufacturing process. To track inventory easily, your POS software must integrate with your inventory system. With integrated software and when done correctly, you can eliminate data entry errors and improve your reporting. You can create dashboards that show information like profit margins and inventory turnover.
10. Use the Barcode System
Barcodes are still useful today, even though they were created more than 70 year ago.
Businesses can manage their inventory more efficiently, accurately and quickly by using the black bars and alphanumeric symbols you are familiar with. Handheld scanners allow inventory managers to easily track both incoming inventory and outgoing inventory.
The barcode on items in your warehouse identifies details such as the size, color, date of production, expiration and other information. Barcodes can also help you to see your products better and use your inventory more efficiently. For example, using the items that are expiring first for orders. You can also conduct an inventory count quickly and process orders more efficiently. The barcode in retail can also include the product name and price. Barcodes can be attached to products at any stage of their lifecycle, from manufacturing through service.
11. Purchase Orders
Purchase orders are used by businesses to track the orders they place with suppliers or vendors. Purchase orders contain information about what was bought, how much and at what price.
The goods are inspected and compared with the purchase order. This ensures that the correct item was received in the correct quantity and that the invoice price is accurate. The purchase order is essential to receiving inventory accurately.
12. Receiving Inventory Accurately
To ensure accuracy, inventory must be compared to the purchase order when it is received. Verify that the item was received in the quantities ordered and at the agreed-upon price.
The first step to a precise inventory count is receiving inventory. Your inventory management system will play a major role in this, but so will your employees. It is essential that they are well-trained, and know the correct steps to follow when receiving inventory. Your inventory management process will start on a solid footing if you are accurate at the beginning.
13. Formalize processes and standardize them
By providing information and data to make purchasing, manufacturing and promotion decisions, the right technology can help improve inventory management. There is also the “people” side. By formalizing, standardizing, and reviewing your processes regularly you can reduce human error.
It is possible to minimize errors by being consistent with the way you receive your stock. This will also help control costs. Standardizing the process that everyone follows to receive, count, verify and unpack products, as well as picking, packing, and shipping them, can reduce variation, waste, and increase revenue.
14. Organize Stockroom
Stockroom organization has a major impact on the efficiency of supply chain management. Inventory that is hard to locate or that takes too much time to locate wastes valuable time. Supply chain management should also take into account other inventory challenges such as the special requirements for fragile or perishable stock.
The warehouse is a key element in efficient order and inventory management. You can increase your inventory by managing your space effectively. This will help you to control costs and boost your sales.
15. Take Data-Driven decisions
A robust inventory management system can help you make informed decisions by providing data in real-time. Your inventory management system must provide you with up-to date information about the products and supply levels on hand. It should also include the cost of stocking these products, as well as the rate at which products are sold and when to replenish certain supplies.
Data can be used to monitor vendor performance and predict future sales based on past sales. Data-driven decision making combines the art and science of inventory management, allowing you to maximize revenue while minimizing costs.
16. Analyze Supplier Performance
Inventory management systems can help you analyze and evaluate supplier performance. You should ask yourself:
- What suppliers consistently deliver on time?
- Which suppliers are the least likely to have shipment errors?
- What suppliers offer the lowest rates?
Inventory management costs can be increased by a supplier who has an unstable performance. A good system will help you identify suppliers who are slow to respond or deliver less than expected.
17. Invest in Inventory Management Software
Inventory management software is used by businesses to optimize and manage their supply chains. Inventory management software allows small businesses to ensure they have the right amount of inventory at the right location in order to meet demand from customers and maximize efficiency.
The right inventory management software will provide accurate and up-to date information that can be used to make important purchasing decisions such as when to replenish stocks and which vendors to choose.
Businesses of all sizes need to have an effective inventory management system. Effective inventory management is essential for small businesses, as it can help them manage their limited resources and ensure accuracy throughout the supply chain. It also helps make decisions regarding product development and marketing.
A sophisticated inventory management system can help businesses save money, time and increase sales. It automates processes to reduce costs, accurately track goods and services incoming and departed and provides real-time information needed for purchasing and product development.
