Inventory management is one of the most critical functions in any organisation. An effective inventory management system enables organisations to react quickly to market demands and deliver cost reduction through optimal stock holding, with such control requiring businesses to accurately track inventory both in accounting records and by physical count.
To improve inventory management control, a small business must evaluate the quality of the inventory over time to ensure it is stocked appropriately. An inventory that falls short translates to lost sales opportunities, while a surplus inventory can result in unnecessary operational costs associated with handling, transportation, and warehousing.
To improve your inventory management, ensure that you fully understand your supply chain, priorities, business plans and backup plans. Here, the Vice President of Sales at fast-growing flexible warehousing and logistics platform Trident Worldwide, Richard Tucker, shares his top five ways to improve your inventory management:
- Optimise your inventory
It is key to understand and analyse your supply chain. Reports on past records can help you analyse past inventory levels which will help small businesses develop a plan for order quantity, as well as a schedule for reordering to minimize supply chain hassles.
Carrying the smallest amount of inventory that you need in order to turn over the most product is the best practice to reduce your carrying costs and increase your eCommerce success.
- Track your inventory accurately
It is vital to make sure that you have the correct inventory levels at all your storage locations. The key elements of inventory accuracy are:
- Maintain inventory in a well-organised warehouse
- Establish good inventory naming and labelling practices
- Define and follow efficient storage and receipt processes and policies
- Use cycle counting
- Limit and track access to inventory
- Use technology to your advantage
- Set minimum stock levels
There is no way to achieve the perfect inventory level, but minimum stock levels are a great way to approach this balance. Set a minimum stock level for each item that allows you to order new stock in before you run out. Base your minimum stock on sales data combined with time needed to acquire new stock.
- Choose the right inventory management software
Inventory management software will help you keep up with your stock in an easier system, with many software solutions that can help with this requirement. Here are some questions to help you pick the right inventory management software for you.
- Can I take a test drive?
- Is it easy to use?
- Is it agile?
- Does it integrate with my other software solutions?
- Will it grow with my business?
- Move slow-moving and obsolete inventory out
Slow-moving inventory is generally defined as stocks or products that sit in your storage room or warehouse (and have not moved) for a prolonged period. While the classification of what can be considered slow-moving varies depending on the product or industry, most organizations already consider stocks that have not shipped within 90 days as slow-moving.
The challenge with having slow-moving inventory is that it physically eats up space and ties up capital, which can impede cash flow and thus impact your business. There are several factors that can cause this issue, such as wrong sales forecasts, a market slowdown, aggressive promotions from competitors or even your procurement team just wanting to save on per unit costs by ordering more volume. Whatever the cause, minimizing slow moving inventory leads to positive cash flow and better ROI.
In summary, inventory management is an important part of a business's profitability, however a lot of businesses do not practice good management when it comes to what they sell. Some businesses have too little inventory, so are unable to meet customers' demands by supplying enough available products. This often drives customers to the competition.
Some businesses go the other way and overstock items, so they will always have the items customers are looking for, but with the risk of this strategy is overspending in their business. Excess inventory not only ties up valuable cash flow, but it also costs more to store and track.
Effective inventory management lies between these two extremes, and while it requires more work and planning to achieve an efficient management process, profits will reflect the effort.