Inventory management might seem like the no-brainer side of running a business, but in reality, it can be quite difficult. Inventory loss cost retail companies $49 billion in 2016, and 16 percent of the shrinkage stemmed from administrative and paperwork errors. Even without human error on the administrative/management end, businesses have to deal with shoplifting and employee theft. To avoid inventory nightmares, understand the ins and outs of inventory management as well as techniques for streamlining your process.
What Is Inventory Management?
Inventory management is the process of tracking the amount of supply on hand and ordering goods and materials based on inventory deficits and sales projections. Inventory management is integral to the success of a business for several reasons:
- It informs sales and marketing strategy: Keeping an accurate tally tells you what is selling well and what isn’t. With this information in hand, you know which products to push through marketing and sales, and you can evaluate the factors that are contributing to the appeal of popular products.
- It tells you your inventory pain-points: Holding an inventory tally up next to sales figures helps sound the alarm if you’re losing inventory due to theft, and if you’re continually running out of something but not seeing profits you know you’re paying too much for supplies or not charging enough for that item. Additionally, when you know which items are likely to sell out, you’ll be able to improve customer satisfaction by keeping these items in stock.
Good inventory management is the lifeblood of any successful venture, including nonprofits that need to track donations before distributing them to recipients.
How to Streamline Your Inventory Management
Streamlining inventory management is a matter of using automated software, creating best practices for ordering, understanding the connection between assets and inventory, integrating sales, as well as creating enough space for priority items.
Use Inventory Tracking Software
About 43 percent of small business owners are still tracking inventory by hand. This leaves the door open for human error and wastes time that could be spent on higher-level tasks and innovations. If you’re among those who still employ pencil and paper for inventory management, consider converting to a software solution.
The software lets you scan in inventory quickly and track its life-cycle from shelf to sell. At the baseline level, there are free options that include features like UPC scanning, automatic data backup, turnover tracking, and multi-user/location functionality. You can reduce inventory-related costs by up to 30 percent. There are also apps for iPhone and Android, including free and pay-as-you-go options.
Create Best Practices for Ordering
If you’re not doing the ordering yourself, make sure that there’s a thoroughly outlined process in place. Whether it’s a manager or employee, whoever is in charge of ordering will be better off with a detailed set of instructions. They’ll be more accountable because there’s no uncertainty or wiggle-room for mistakes, such as over-ordering or missing an order on a low-stock item.
Post your list of best practices where it can easily be found, and make sure the person in charge of ordering has access to the software solution you’re using to manage inventory. Base your best practices on what you know from experience. Do you need to order the same quantity of items each time or do you use quantity on hand to gauge the size of orders? Or, should you order a set quantity of some items while others vary?
As you note sales trends and tailor promotions, keep careful tabs on inventory cycles and create best practices for ordering based on the numbers. Maintain first-in, first-out (FIFO) as a rule of thumb for selling perishables, meaning the perishable items you order first should be the first ones you sell. In turn, FIFO will inform your ordering practices.
Assets are the supplies your business owns. In a broader sense, your employees and financial holdings are also assets. Manage your assets alongside your inventory with the goal of maximizing asset usage through proper inventory management.
Say, for example, you determine a specific item, or set of items, sells well during a certain period of time, such as before a holiday or during the summer season. In anticipation, you order plenty of hot items. However, you forget that the heightened level of business will require more employees to help the influx of customers, and will require more of the supplies your business needs to operate smoothly.
To avoid this problem, keep a careful eye on assets and make sure you have everything you need to facilitate the inventory turnover you’re expecting. Keep track of physical assets to make sure you’re not suffering losses and operational setbacks due to theft and shoddy quality. Consider making bulk orders when there are off-season sales on non-perishable inventory and assets, and find business storage space where you can set things aside in anticipation of the busy season.
Integrate Inventory and Sales
If you’re using inventory software, then you may be able to integrate it with your point-of-sale (POS) software so that items sold are automatically subtracted from inventory. At the very least, it’s easy to log-in to the software and remove items from inventory with the click of a button.
The more time you spend tracking sales and returns with software, the more data you have available to get fine-grained insights and improve the accuracy of sales projections. Some software options include predictive analytics or offers integrations with analytics solutions. If you’re using software without analytics, or you’re keeping sales records in spreadsheets, you can either analyze the data trends yourself or import data into an analytics program.
Set Aside Space for Inventory
Streamlining inventory management is a matter of more, less, or none. You’ll find it’s advantageous to order more of certain items ahead of time and less of others, while you may have inventory that’s sitting around taking up space.
If you’re a retailer, you need space for the things that are selling now and in the near future. Put your low-selling inventory in storage until it gets popular due to shifting trends or until the point when you can push it out with promotions. With storage space, you can also work on getting rid of low-selling inventory online and it won’t clutter up your store. Additionally, put any excess quantities of high-selling merchandise in the space for easy access.
The same goes for a production business: take advantage of bulk deals on materials you know you’ll need in the future and keep them in low-cost, secure storage space. Buying bulk is the best way to save on inventory costs.
If you run an office, storing inventory off-site can help you declutter, which can increase productivity among your employees.
The better your inventory management is, the more revenue, profits, and customer satisfaction you’ll see. Approach inventory strategically and it’s likely to pay off.