5 Basic Inventory Management Tips That Can Save You Money

Introduction

For small businesses seeking consistent growth, every dollar counts. A business's success or failure boils down to its ability to find cost-saving techniques, without compromising on the quality of their product or service. The ability to reduce fixed and variable costs goes a long way in meeting this objective. This is where inventory management plays a part.

Inventory management is the process of monitoring, tracking, and maintaining a company's
Supply Chain in order to function efficiently and effectively. The basic steps of
Inventory Management include purchasing inventory, storing inventory, and profiting from inventory.
In today's cut-throat, hyper competitive world, inventory helps businesses organize themselves better.

However, businesses often lose money because of poor Inventory Management. Even with the best marketing strategies at hand, quality controlled raw materials, good quality finished goods, and affordable rates, a business will be unable to make enough profit if its basic inventory control system is flawed. Businesses should therefore take the right steps to ensure that their inventory management is efficient. This article lists the five most important of them.

Know What You Have

Inventory Management is the backbone of a successful retail business. An inventory management system tracks the lifecycle of your inventory and stock as it moves in and out of your business. If you don't know how much inventory you have on hand, making smart decisions around purchase and sales becomes impossible.

For one, you wouldn't be able to list your products accurately because you'd have minimal or no visibility into the amount of inventory you have. Allocating that inventory to different channels, such as eCommerce, or brick-and-mortar stores would become difficult. What's worse, you could also be stuck with too much inventory, or an altogether incorrect product.

Inventory Management experts have long argued that the best way to categorize inventory is by dividing it into three groups- A, B, and C. Items in the A group are high-ticket items that you need fewer of. C category items are lower-cost, high-turnover items. The B group is what's in betweenmoderately priced items that move out more slowly than C items but more quickly than A items.

Basic inventory management can be difficult and time-consuming.

There are many different aspects to consider when it comes to basic inventory management.

Work on your Order Management Efficiency

For a small business, order management is usually straightforward. However, large-scale businesses typically need additional layers of support to ensure efficient delivery and customer service after the sale.

For businesses scaling up, more orders can mean more confusion and chaos. In an era when online shopping is on the rise, there is a constant demand for increased sales and improve inventory control. Businesses need to pay attention to key areas in order to optimize their order management processes- streamlined delivery, customer service ratings, and reducing bottlenecks or human error.

For instance, the Economic Order Quantity (EOQ) method may work well to increase your order management efficiency. EOQ is the amount of stock that is ordered at one time in order to maximize the total net benefits of ordering and carrying inventory. The economic order quantity formula considers the costs of ordering and storing stock, and then identifies the order quantity where both costs are at their lowest.

Another way to optimize order management is by considering strategies to reduce lead time. Lead time refers to the amount of time between when a purchase order is placed to replenish a product, and when the order is received at the warehouse. When there are more suppliers involved in the inventory chain, the lead time increases.

Make Stock Records

make stock records 1652432913 2436

Many businesses count their inventory on a regular basis. Some businesses do a stock count once a year, others on a monthly or weekly basis, and some do all three. Regardless of how often you count it, make sure to physically match up your inventory with what is reflected on your financial records.

A stock record offers insights into the problems that may be affecting your inventory system. It gives you a clear picture of the types of inventory you have and helps you manage them efficiently. If you have an unreliable supplier, your inventory can suffer. Stock recod helps you identify if your third party vendor or supplier isn't delivering as they should. If a supplier habitually falls behind on deliveries or frequently short ships, you may need to take action. In such a scenario, you may need to change suppliers or deal with inventory shortage as a result of uncertain stock levels.

An efficient stock record also helps in selling your product quickly, and at a healthy profit margin. It ensures that the first items to hit your store or warehouse should be the first to sell. First In First Out (FIFO) is an old but effective Warehouse Management rule of thumb. But then, why not sell the newest inventory first? At times, the quality of older stock is not reliable. Sometimes, certain things also go out of fashion. The longer it sits, the more likely it will fall out of fashion and fray. It may leave you with a lot of dead stock. To ship out old stock efficiently, aim to place items in the warehouse in the order of arrival, where the older items stay at the front, and relatively newer items are at the back.

Set Up Predictive Maintenance

If applied throughout an organization, predictive maintenance can help organizations improve efficiency and avoid unexpected breakdowns. However, many companies still aren't cross-referencing their data analysis results to optimize their processes. The importance of stock management cannot be overstated.

For a business to manage, monitor, optimize, and adapt all the processes related to inventory, orders, and order fulfilment, the management needs to analyze data from time to time. It helps to quickly fulfil orders and give customers timely updates on delivery. This ensures they remain loyal to your business in the long run.

For instance, an Order Management Software or Transportation Management System can ensure timely delivery. The only hiccup is that for any system to work accurately, you need to first feed it accurate data about the other logistical processes. There are solutions, like Zip Ordering, Zoho Inventory or QuickBooks, that integrate and consolidate all the Supply Chain information of a business and present it in such a way that it provides clear insights into inventory management, locations, fulfilment processes, and customers. It can guide a business to take the right corrective action at the right time.

Basic inventory management can be difficult and time-consuming.

There are many different aspects to consider when it comes to basic inventory management.

Leverage Technology

The ability to adapt and transition to new technologies is essential for businesses to succeed in today's marketplace. Automation allows businesses to increase efficiency, adapt to changing market conditions, and have a sustainable system in place.

With good inventory software, it's possible to efficiently manage stock levels, compute the cost of goods sold and keep track of inventory. You get real time updates on raw material, finished goods, and inventory turnover with efficient inventory management software.

Before you choose a software solution, make sure you understand what your business needs. Choose software that provides the analytics important to your business. Make sure it's easy to use and that it integrates well with your other management software.

However, know that you can manage your stocks with other kinds of technology too, and not just inventory management software. For instance, a POS system can help in inventory tracking and planning. But if you're keen on both, inventory management software and a POS system, make sure these technologies are compatible with each other.

The right system will also help you stay on top of your perpetual inventory management. A perpetual inventory system records sale and purchase of inventory immediately, through the use of computerized point-of-sale systems. This method eliminates the need to physically count and record transactions and allows for real-time data analysis.

It saves money by reducing labor costs associated with manual counts, and allows businesses to easily adjust to changes in demand or supply without having to physically re-count inventory items.

Technology offers the following three benefits-
1. It resolves problems incurred through human error, especially in areas where record-keeping and communication are critical.
2. It eliminates the risks and inaccuracies inherent in paper records.
3. Customized software applications like industry-specific inventory management software can automate processes specific to your business and increase efficiencies. For instance, Zip Inventory, a Restaurant Management software tool helps streamline food business operations.

Conclusion

A common challenge most businesses face is having too much inventory and not enough buyers. Sometimes, however, it's the other way aroundthere's not enough inventory to fulfil orders. Alternatively, a business may be unaware of the items it has in its inventory or the locations they are stored at. This could cost a business time and money from excessive cycle counting, excess inventory, damaged goods, and loss of stock due to inefficient management and quality dilution.

Inefficient inventory management results from businesses that have a poor grip on their inventory movement; it occurs when they are behind on their inventory tracking; and when they rely on outdated spreadsheets to keep track of their inventory. At its best, poor inventory management can lead to heavy losses; at its worst, it can cause a business to fail.

Following a few simple inventory management steps can help you save money and increase your profits. These steps include modernizing your order management process, utilizing the best methods of inventory control, mitigating risks of inventory wastage, and leveraging technology.

Managing inventory can be difficult, especially when you have to manage a large amount of inventory.

There are different ways to manage inventory, but which one is the best for your business?

Must-Read Content

People also ask

LIFO, FIFO, Average Cost, and Weighted Average What is the difference between LIFO and FIFO? LIFO - Last In, First Out FIFO - First In, First Out What is the difference between average cost and weighted average? Weighted Average - Average Cost - The average cost of goods is calculated by multiplying the cost of the units in the inventory by the number of units in the inventory.
There are three primary ways to handle inventory in your business. Depending on your needs and situation, one of these techniques might be better for you than the others. Let's take a look at what each technique has to offer, and which one might be the best choice for your business.
Keeping track of inventory can be a major headache for any business. For small businesses, this can lead to inefficiencies and a waste of precious time. But inventory management is more than just a numbers game. It's also an opportunity to streamline processes, reduce costs, and boost productivity. If you run a small business, you've probably thought about how to best manage inventory. The best way to answer this question depends on the size of your business and your inventory management needs. Keep reading to learn more about the different methods available and which one is right for your business.
SCHEDULE A DEMO