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.
nventory 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.
