Inventory management starts with a specific process, but inventory management software tools can also help. Here’s how to choose the best business inventory management and reporting practice. Inventory management and reporting practices involve ordering, storing, and using a firm’s materials or products. There are different types of inventory, such as raw materials, cycle inventory, and MRO items.
Prioritizing your inventory helps you know which products to order or manufacture most, so you can consistently meet your customers’ needs.
Inventory management is essential to a company’s profitability, yet many small businesses need to manage it better when selling merchandise. Some enterprises need more inventory and need more products to meet customer expectations. This often causes the customer to leave, sometimes to another company, and sometimes for good.
On the other hand, many businesses are doing the opposite and stocking up on “just in case” items. While you will almost always get what your customers are looking for, the risk of this strategy is losing money to your business. Excess inventory restricts valuable cash flow and is more expensive to store and track.
Effective inventory management lies between these two extremes. While it takes more work and planning to achieve an effective management process, your profits will reflect your efforts.
Before you can master effective inventory management, you need to understand what inventory consists of. Here are a few of the many different types of inventory:
- The raw materials or materials you use to manufacture your product.
- Incomplete products and semi-finished products are not ready for sale.
- Finished products are usually stored in warehouses until sold or shipped.
- Goods in transit, are no longer in the repository and are being transported to their final destination.
- Revolving inventory or products shipped to a company from a supplier or manufacturer and immediately sold to customers.
- Anticipate excess inventory or products to increase sales.
- Inventory separation is parts, supplies, or products that have been put on hold in anticipation of production slowdowns or stops.
- MRO merchandise, “Maintenance, Repair and Operations Supplies,” support the production process.
- Reserve stock, or “safety stock,” acts as a buffer in case of unexpected problems or the need for more stock.
- It helps in categorizing your inventory, so you know which objects fall into the same category, and you can then manage them accordingly. For example, you treat finished products differently than you treat raw materials.
What is the best inventory management software?
Many inventory management software is available for small businesses, and which one is best for your business depends on various factors. For example, consider your budget, business type, and features you’re looking for, such as mobile apps and cloud backup.
Tips for Inventory Management
Here you’ll find the best essential tips for effectively managing inventory to increase profitability and manage cash flow.
Prioritize your inventory.
Sorting your inventory into priority sets can help you comprehend which items you need to order more and more frequently and which items are essential to your business but may cost more and move more slowly. Experts recommend dividing your inventory into A, B, and C groups. The items in group A are the ones where you need fewer cards higher. Items in the C series are low-cost items with a quick turnaround. Group B is between moderately priced products that move slower than item C but faster than item A.
Track all product information.
Be sure to record the product information for the items in your inventory. This information should include SKU, barcode data, supplier, country of origin, and lot number. Also, consider following the price of each item over time so you can understand factors that can change costs, such as rarity and seasonality.
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Review your inventory.
Some companies conduct a general census every year. Others check the top items monthly, weekly, or even daily. Many people do all of the above. No matter how often you do this, be sure to physically take stock of your inventory regularly to ensure it is what you think it is.
Analyze supplier performance.
Unreliable suppliers can cause problems with your inventory. If your supplier is typically late or out of stock frequently, now is the time to take action. Discuss the issue with your supplier and find out what went wrong. Be prepared to switch associates or deal with uncertain stock levels and possible stock-outs.
Practice the 80/20 inventory rule.
Generally speaking, 80% of profits come from 20% of equity. Prioritize inventory management on this 20% of things. You should understand the entire sales lifecycle of these items, including how much you sell in a week or a month and keep an eye on them. These items make you the most money; don’t underdo it in managing it.
Be consistent in how you receive inventory.
Ensuring incoming inventory is processed may seem logical, but do you have a legal process that everyone follows, or does each employee who receives and processes incoming inventory do it differently? Small inconsistencies in sourcing new inventory can leave you scraping your head at the end of the month/year, wondering why your numbers don’t match your order. Ensure that all employees receiving inventory do so in the same manner and that all boxes are inspected, received, and unpacked together and thoroughly counted and checked for accuracy.
Again, this may seem like a no-brainer, but it doesn’t drive sales at the end of the day. You must know what items and quantities have been sold and update your inventory totals daily. However, you will need to analyze this information. Do you know when certain items sell out faster or when they sell out? Is it seasonal? Do you sell certain things on specific days of the week? Do you almost always sell something together? Knowing your sales totals and a complete picture of how your items are selling is very important in controlling your inventory.
The order repeats itself.
Some sellers are willing to reorder inventory for you. On the exterior, this might seem like a good thing—you save time and staff by having someone else manage the procedure for at least a portion of your project. But remember, sellers have different priorities than you. They want to move their items, and you are looking for inventory items that are more profitable for your firm. Take a moment to check inventory and order any items you want to restock yourself.
Invest in inventory management technology.
If your business is small enough, the first eight items on this list can be managed manually using spreadsheets and notebooks. But as your business grows, you spend more time on inventory than on your business, or you run the risk of getting your inventory out of control. Good inventory management software makes all of these tasks easier. Before choosing a software solution, ensure you understand what you need it to do; it provides critical analytics for your business and is easy to use.
Use well-integrated technologies.
Inventory management software is one of many technologies that can help you manage your inventory. Things like portable scanners and point-of-sale systems can help keep you on track. When financing technology, prioritize strategies that work together. Having a POS system that can’t connect to your inventory management software isn’t the end of the world. Still, transferring data from one system to another can save time, quickly leading to accurate inventory counts.
Whether you’re a small business still operating with a pen-and-paper inventory management method or a global corporation using sophisticated inventory management software to ensure you always have the stock you need, the value of good inventory management is undeniable.
A best inventory management practice can help you reduce costs, better analyze sales to predict the future, keep customers happy, and help you increase profits while dealing with the twists and turns your firm will throw at you.
Inventory can be your company’s most significant asset, and it’s so unique that many companies need help managing it effectively. There is a misconception that managing inventory must be tedious or complex, but this is far from the truth today.