Inventory management is all about getting the balance right; making sure you offer the right selection of products and services to the right customers while committing minimized cash and costs.
Companies usually have a substantial amount of capital invested in inventory. If your business isn’t managing inventory properly, your products can drain your cash instead of turning in profits. 43% small businesses in the US still use manual systems to track inventory according to State of Small Business Report which can lead to mishandling, inaccuracies, errors, shipping mistakes and misinformation about your stocks leading to potential losses.
It is always a good idea to improve inventory management and tighten your control over predictability of sales. This may prove difficult since inventory requires warehouse capacity, planning and investment but it is worth the money because it leads to raised potential profits.
Here are some tips to follow in order to improve your inventory management.
The need for cycle counting is integral in order to manage inventory. Instead of carrying out an annual full count, the use of cycle counting to audit inventory is much more beneficial since it spreads reconciliation over the year while traditional counting forces operations to stop, proving to be disruptive to daily processes.
Cycle counting is when each day, week or month, small subsets of products are checked on a rotating schedule over a period of time. However, one must consider factors such as counting frequency, finding a trusted employee to manage count system as well as effects of counting on manufacturing and delivery processes.
Cycle counting provides a good assessment of product accuracy and can be adjusted to focus of higher value items or those critical to business at particular times. It is a good method of validating accuracy and rectifying errors.
Track access to inventory
An important tip to retain is to ensure that limited people have access to managing inventory. Only a few handpicked employees should be able to influence the inventory. By knowing the limited people who have access, companies can ensure proper training regarding organizational system practices. Management becomes much more efficient and errors are reduced.
A company should ideally decide who has access to inventory management when the system is first established but this shouldn’t be a rigid number of staff. Annual examination of who should have access might suggest it useful to add or subtract people from the exclusive list in order to ensure maximum productivity.
Stock level controlling
Setting par levels is another useful practice that companies should adopt since it makes inventory management easier for each product. Par levels are the minimum amount set of a product that must be stored at all times so that when your stock dips below this level, it acts as an indication to order more. Usually, par levels vary in accordance with each product’s sales and the time it will take to accumulate stocks.
Though this process of controls requires research, planning and efficient decision-making, setting par levels is a good, systematic practice of inventory maintenance as it also allows your staff to make decisions on your behalf. It should also be noted that par levels aren’t absolute. They need to be updated and changed over time to make sure they are still applicable; owners shouldn’t hesitate to re-adjust the levels if the need arises.
First-in, First out (FIFO)
The ‘First-in, First Out’ or FIFO principle is of utmost important in inventory management. It refers to a situation when your oldest stocks are sold first instead of newer stocks and is particularly integral for distribution and storage of perishable goods or goods with early expiry dates so that the company doesn’t have to deal with unsellable spoilage or a waste of resources that can have a negative impact in the long run.
FIFO is also practiced for non-perishable goods in order to allow room for adjustments in packaging design and feature changes; companies don’t want to end up with something unfashionable that they can’t sell anymore.
The management of FIFO requires an organized warehouse and systematic planning which ensures that old products stay in the front.
Prioritize with ABC
The use of an ABC analysis helps a business prioritize certain products of their inventory management; they are able to separate products that require more attention. This is done by categorizing products thoroughly into three types: the high value products with low frequency of sales, moderate value with moderate frequency and products with a low value and high frequency of sale, all in accordance with the law of demand assumption. Each category requires varying levels of attention. For example, high value products need meticulous observation because their profits are substantial but sales unpredictable. Low value products are often paid less attention to because of their relatively less financial impact.
Quality control is of immense importance in a business and must be ensured for maximum customer satisfaction and business growth in economic terms. Quality consciousness should be implemented as early as possible. This can be done easily through a checklist of procedures employees will need to adhere to when checking goods such as signs of damage (leaks or tears), whether the product matches the color and style of purchase order and the terms of sale. The shared list of common goals is not efficient, it also makes sure that all workers are on the same page and this will inevitably increase productivity. If certain products don’t meet company standards, workers immediately return them to suppliers, hence, making this inventory practice effective as it eliminates the need to pile up stock levels and reduces errors. When discussing quality, storage environment must be considered as well which will include variables such as light, humidity and temperature.
Every business owner wants to create that special buzz around his/her store. You know the one. It’s the one where every conversation has a mention of your shop. It’s the one where everyone from preteens to octogenarians have heard of you. It’s the one where you’re the talk of the town, the bees’ knees, the real McCoy – and any other outdated sayings I may have missed.