Imagine your customers are lining up for one of your products but you’re clean out of stock. If this happens routinely, your inventory management system might be out of whack. Read on to find out about inventory management. Then, learn how to improve tracking your business assets.
What is inventory management?
Inventory management is a component of supply chain management. It tracks the flow of inventory from manufacturing to warehouse storage to the point of sale. Essentially, your inventory is the products your business sells. These products could be clothing, food or anything between.
Why should small business owners worry about inventory management?
Products, unlike services, require constant monitoring. This makes inventory management an ongoing goal for product-based small businesses.
Simply put, inventory management is all about having the right inventory at the right quantity, in the right place, at the right time, and at the right cost. It also ensures that products meet quality standards.
Successful order fulfillment is only possible with adequate inventory on hand. You can’t close a sale if you run out of the product your customer needs. Nor you can build customer loyalty. This is why a streamlined inventory management system is key to your bottom line.
What does an effective inventory management systems looks like?
- If your inventory management system is operating at peak condition:
- You’re able to maintain a reasonable stock of all products on an ongoing basis
- You’re able to deliver products in their optimal condition or freshness state
- You don’t carry excess inventory
- Your inventory doesn’t remain in storage for too long
- You’re able to meet customer demand for your products
- Customers find what they need on the first visit to your business.
A small business plagued by poor inventory management might experience some or all the following:
- You’re regularly out of stock of one or more products
- You’re critically low on products
- You carry too much excess inventory
- Your inventory remains in storage for a long time
- You overspend on warehouse storage
- You’re unable to keep up with customer demand
- Customers leave your business without finding what they need
- Customers have to revisit your business to find the product they want in stock.
Best practices for inventory management
There are many things you can do to maintain an ample stock of profitable products:
- Replace manual inventory tracking with inventory management software such as Wasp Inventory Control or Fishbowl Inventory
- Visually inspect inventory. Make sure it matches the numbers the inventory management software gives you. Hire a stock controller if you don’t have time to do this yourself.
- Use hard sales data rather than guesswork when forecasting sales. This way, you’ll keep in stock more of your most profitable products. And you’ll keep less of your least profitable products.
- Stock older items at the back of storage and newer items at the front
- First, sell the items you manufactured or ordered first. This will ensure that products are sold at their peak condition or popularity.
- Be mindful of how long products can keep when ordering stock. Ordering too much could result in the expiration or obsolescence of some commodities.
- Consider taking unpopular inventory out of stock for good. These products may not yield a good return on the investment.
Implement a quality control system. Having enough stock on hand won’t matter if the products aren’t up to quality.
MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.