Inventory management ensures your business has the right products in the right quantities at the right time.
If you’re a business owner, you’re going to get plenty of business advice about cash flow, staffing, and just plain having the drive to keep going when things are tough. But you simply cannot ignore practical issues like inventory management.
For one thing, your business pays taxes based on inventory, so if you were audited, you would be faced with proving which records in your books are accurate, both for quantity and cost. Inventory values and product costs are essential for understanding your profit margin. And inventory management will keep you on top of damaged or lost inventory. Here’s some basic business advice about inventory management.
Common Inventory Mistakes
Knowing the most common inventory mistakes is a good first step to preventing them in the first place, and recognizing them quickly when they occur. Some of the most common inventory mistakes are:
- Having too much inventory – If you’re afraid of being caught short, you can go overboard, which consumes capital and erodes profits. Plus, warehousing has associated costs, and aging inventory can be difficult to move. Track how often your inventory turns around so you can learn exactly how much to order and how frequently.
- Haphazard inventory tracking – Miscounts can happen during receiving, order fulfillment, and, unfortunately, through employee theft. Barcode scanning and daily random inventory checks of the record versus product help. Also, keep inventory physically secure with alarms and RFID tags, and limit who can handle inventory.
- Considering all inventory as equal – Triage is essential, because tracking everything at all times can be impractical. Focus on the 20% of your products that sell most when checking inventory, forecasting, and reordering. Next in importance are the middle 30% of items, while the lowest selling 50% of your products do not need to be tracked as tightly.
- Not investing in inventory software – You can use spreadsheets, but the potential for error is enormous. Besides, inventory tracking that allows multiple people to work with inventory simultaneously is widely available. Today’s software provides you with a central database, powerful tools, and mobile-friendliness, so your team can work inventory using tablets.
- Not making a backup plan – Just as you should regularly and securely back up accounting data, you should back up inventory data. A natural disaster or burglary could undo all your hard work in an instant if you don’t plan for the worst case scenario. Some inventory software packages have automated back-up capability built right in.
- Have multiple sources for inventory – If black Friday or Small Business Saturday are your major selling times, be sure that you have at least two back-up vendors to get your supplies. The worst this you can do a holiday time is tell your customers their orders are on back order.
Steps in a Good Inventory Management Process
The first step in solid inventory management is assessing what you have and tracking how quickly your products turn over. Depending upon your storage space, delivery costs, and how well a product sells will determine how much you need to keep on hand. For best sellers, factor in volume or shipping discounts for large quantities.
Define a minimum stock level and reorder whenever that level is reached so you don’t risk running out of a product. When calculating minimum stock level, consider reorder lead time. A first-in, first-out approach to keeping goods shelved is advisable, and if you can track products through your point-of-sale system, you should.
Find The Right Point-of-Sale System (POS)
An outstanding point-of-sale (POS) system is like having behind-the-scenes personnel helping you manage inventory better. When your POS has barcode scanning and inventory management built in, it will automatically deduct products from your inventory as they are sold, so you don’t have to do this manually.
Some POS systems alert you when stock of certain items runs low, and will even complete purchase orders for you, saving you considerable time. These systems can track your best-sellers, so you can always have enough without stocking too much inventory. Some systems even incorporate customer loyalty programs that can strengthen customer relationships.
Develop An Inventory Control System
A full-time inventory manager is a luxury many small businesses can’t afford. Fortunately, technology can step in and take care of a lot of the repetitive work. However, it may be worth your while to work with an inventory control consultant who can help you map out a sensible inventory control strategy and system to gather the tools you’ll need to carry it out. When you create your inventory control approach with the help of an expert, you can be more confident in the accuracy and management of your inventory and records.
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