Inventory management and control are integral components of your company’s success, so you must evaluate them on a regular basis to ensure you’re on the right track. How’s your stock working out for you? Do you often run out of your best-selling items? Do you occasionally lose money on excess stock that you have to mark down or that spoils? All of these are important inventory management questions to ask yourself.
The Basics of Inventory Management: Where to Focus
To properly manage your inventory, you must track your stock in real-time to ensure that you have the right products in the right quantities at the right times. Managing your inventory correctly ensures that you maximize sales and avoid tying up funds in excess stock; In other words, both too much and too little inventory can make or break your business. It all comes down to demand and trends. Here are some more things to consider:
- Order Points – Calculating the right amount of inventory to keep on hand at all times is critical. If you run out of stock, you’ll lose customers. If you buy too much, you’ll waste money and risk the items becoming obsolete, which could require you to eventually sell at deep discounts.Find a good forecasting software and use your historical data for an accurate picture of how much you need to stock.
- Pricing – Pricing depends on many factors that overlap. For example, while you may get a break from a supplier when you order in large quantities, it may require more upfront cash, and you may end up with too much stock on hand. The Economic Order Quantity is the formula that small and large businesses should use to manage pricing. The formula uses the total inventory management costs – order costs, holding costs, and shortage costs, for example – to help you develop the correct pricing.
- Reorder Points – Knowing when to reorder is another basic inventory management factor to consider. Things like the time it takes to pack and ship and other quantifying data will help you determine your reorder points. There are easy formulas that managers can use to calculate reorder points.
Inventory Best Practices for Small Businesses
- Use FIFO (First-In, First Out) – Most goods should be sold in the order they were purchased. This is especially important for perishable products or those with an expiration date. Teach your employees about stock turnover and to place newer items on the back of the warehouse shelf, so older items are in the front. Using the FIFO system for inventory control means less spoilage and out-of-date merchandise.
- Invest in Yourself and Your Business with Accurate Forecasting – Look ahead, but not too broadly. Divide the inventory into smaller chunks and examine them for historical data. Compare what you find to what your employee(s) have found. Brainstorm with them, identify issues, such as poorly checked-in shipments and make a plan to fix them. Examine your marketing efforts, predicted growth opportunities, and market trends.Your forecasting should be as accurate as possible to reflect a realistic bottom line.
- Complete a Stock Audit – Manually count your inventory to make sure your stock matches your records. This will help to track pilferage and spoilage while doubling-down against human error. Manual audits are usually conducted annually, but if you have inventory issues or high-value items, you may want to perform audits more frequently or even conduct unannounced spot checks.
- Identify Stock That Isn’t Selling – If something isn’t selling, move it to the discount rack or shelf. Unsold stock takes up valuable space and ties up your funds.
- Use Modern Apps – Using bar coding either on your product or the packaging can save countless hours sorting inventory. Also, human inventory control is inefficient as there is higher chance for human error to occur. Numerous studies show that humans counting inventory mentally zone out from boredom and make mistakes.Look over Stockpile, a free app by Canvas. Consider other apps like Wasp Barcode Technologies, JumpTech, Goods Order Inventory System (GOIS) Pro, Stock Control, and Bottom Line. One of these might be a good solution for your inventory challenges.
- Upgrade Your Software – A good software program should be accessible from your point-of-sale system. It helps you to track inventory in real time, allows you to analyze stock, assists in forecasting, improves cash flow, and it can boost your bottom line.
- Pay Attention to Warehouse or Stockroom Design – The design of your warehouse can make a major difference in providing the best and most cost-effective service to your customers. Details such as what pallet racking system and what type of pallets you use, for example, directly affect efficiency. Using the right pallet racking system will minimize damage and provide you with a quicker method of identifying reorder points. Use a logical layout and group like items together for better inventory control. Leave room for your forklifts or utility carts in your design to make it easier and quicker for your staff to move the inventory from point A to point B.
- Use The Right Labeling Protocols System – Barcoding helps keep your inventory organized. You can use barcodes on the location in your warehouse and on the item, itself. Item barcodes usually have the actual part number on them as well. Decide whether to label each item or each box or case of items. Make sure to use compatible barcode schemes. If you have different manufacturers that use different schemes, invest in a barcode reader that can read the different types. Your inventory management software should be able to cross-reference your internal barcoding system with the manufacturer’s system.
- Use the Correct Adhesives – Using the right adhesives, especially if you have a lot of different labels for different products, is important if you want to keep your inventory under control. For example, if you store inventory in a non-climate-controlled warehouse and the climate at the location is humid, you want to purchase the right adhesives to ensure your labels stick to whatever substrate the pallets or shelving is made of.Labels that don’t adhere correctly can cost you valuable time when locating inventory and prices, and can even result in misplaced stock.
Inventory control has a major impact on the health of your small business. The more you can improve upon it, the more profit you can expect to bring in.