When you are just starting out with your small business, inventory management might seem easy to handle. But think of how much stock you have on hand at this point in time for each of the products you sell. Managing inventory can be more complicated than you think. Inventory management includes accounting for products in your stock house, raw materials you need to make products and supplies to run your business.
Inventory management is not merely taking into account what stock you have at hand, you need to predict what is going to happen in your business and make sure you have appropriate stock for it. When you have too much inventory, you are wasting your money and resources. When you run short of stock, you risk losing potential sales.
By effectively managing your inventory you can save time, money and leverage sales in your small business. You can manage your inventory by automating some processes, accurately tracking incoming and outgoing goods and services and real-time data to make business purchase decisions and product development decisions.
Inventory Management 101
As a part of inventory management, you should know how much stock to order and when to order them. You will always have to track how much stock you have on hand at any point in time.
There are various ways to manage inventory, depending on the products you offer and your business needs. There are two strategies in marketing – pull and push, and both greatly depend on your inventory management. When you follow the pull strategy, you need to keep an eye on customer demand. Your stock order volume shrinks when the demand decreases. And when you go with the push strategy, you will be predicting the demand. And for this too, you need to be a bit intelligent about predicting your inventory requirement. There is one more strategy – just in time, where you will get goods from your suppliers only when you get orders. The strategy that you use varies with the type of business.
Why is inventory management in small businesses so important?
All businesses need to keep close tabs on their inventory. This helps businesses to manage costs and make sure they have enough stock to meet customer demand. With effective inventory management, you can save a lot of money and improve cash flow.
When you have stock that sits on the shelves for too long means you are wasting the money you spent on those materials. On the other side, when you have empty shelves when orders are crowding, that means you are losing your sales.
So, managing your inventory is a crucial part of managing your sales and cash flow.
8 Inventory Management Tips for Small Business Owner
Efficient, reliable and accurate inventory management is crucial for your small business. Let us take a closer look at ten inventory management tips for your small business.
Tip #1 Use the right inventory method
There is an inventory method that works best for your small business. If your business offers perishable items like fruits, flowers, you must sell your products first, and buy stock only when the inventory gets exhausted. This is the first in first out strategy, the commonly used inventory method used by most small businesses, for good reasons. The FIFO method can have a great impact on your margin.
Tip #2 Analyse and forecast demand
The key to efficient inventory management is effective forecasting. You can rely on your previous records, historical sales, sales trends, market trends and seasonal patterns to predict your future sales and manage inventory accordingly.
You must also keep in mind other factors such as weather, economic conditions and general demand. If you are able to forecast demand, you are likely to manage your inventory efficiently and improve cash flow and sales opportunities.
Tip #3 Identify and push low-turn stock
Identifying products that do not sell for a long period of time and take necessary strides is an important part of inventory management. When you identify low turn stocks, you will be able to adjust production and minimize producing products that have lower sales volume for a long time.
For example, when you have some stock untouched on the shelf for a long time, that means that the demand for the product has been diminished. You must make some efforts to push selling that product in stock. You need to promote that product and give it the best chance of selling before it becomes obsolete. You can run special promotions or move the stock to some other branch where it gets sold faster. If nothing seems to pan out well, you can even hand it over to a third party seller.
Tip #4 Leverage just-in-time inventory method
Just-in-time inventory management (JIT) works ideal for businesses that are unsure of the customer demand. You can minimize the risk of amassing stock on the shelves and reduce operating costs with this inventory method. In this process, you will order for inventory only when you get orders, no sooner than that. The goal is simple: to have as little inventory as needed.
But the process should happen in a flash, you should be able to order stock, get it arrived, and fulfil your orders without any delay.
Tip #5 Track and audit stock levels
As a part of the inventory management system, you must always keep track of all the goods you have on hand at any time. This includes taking into account the stock used for product development and the products out for sales. With this information at hand, you can take a call on how much stock you need to order for the future.
Always do an inventory cycle counting and document it. This de-cluttered everything and you will have a transparent picture of your stock availability. You can set recurring reminders to check inventory and alerts in your inventory system when the stock volume gets down your set slab. Monitoring your stock also gives you a clear picture of your product demand.
Tip #6 Try opting for drop shipping
When you choose the dropshipping method, the supplier directly ships the product from his warehouse to the customers. You get to skip getting the product on hand and the incurred inventory costs. However, you will be responsible for the marketing and sale of the product.
You can get rid of the warehousing costs and delivery headaches. You will get profits from the difference between the item’s wholesale and retail prices, detecting the cost of marketing and sales efforts.
But make sure you have a good relationship with a reliable dropshipping supplier. Also, ensure that the products are delivered with good quality and you have the right inventory management system to monitor the transactions.
Tip #7 Consider a POS system
A point of sale system can automatically track your inventory levels in real-time. Your inventory count automatically gets updated every time you make a sale and there is no chance for errors. The point of sale system is primarily for retail sales. However, you can leverage POS systems at the manufacturing level to track raw material inventory and other supplies as well.
You can integrate your POS system with the inventory management system so that you can eliminate data entry errors. With proper integrations, you can derive profit margins for each product and inventory turnover status over a period of time.
On the other hand, if you have an e-commerce store, you can use data integration tools like PayTraQer to automatically sync your sales and inventory from your e-commerce store into QuickBooks. This gets things transparent and done seamlessly for you. You will know your sales and inventory count and get them recorded into your accounting system automatically, without you having to be involved in it.
Tip #8 Inventory system gives you the complete picture
The inventory management system is a smart way to keep tabs on your inventory. These tools can offload most of your inventory-related burden. You can make sure you have a healthy inventory count on hand at multiple locations with the help of software. Your inventory levels get automatically adjusted in line with your sales and manufacturing. You get every movement recorded and can look back at your inventory to derive selling patterns and analyse customers’ purchase decisions. With the software by your side, you can save a lot of time, labour and headaches.