If you are a retail business or are selling a product of any kind, inventory management is likely a considerable part of your business operations. From ordering and shipping to handling storage, inventory can bring much complexity to your business dealings. This is especially true if you are a one-person company or a small business with a lean team. If you’re not careful, the management of inventory can spiral out of control. So, how can you better handle inventory management? We invite you to read on for a list of helpful methods to more efficiently manage your inventory and reduce costs.
1. Adopt a FIFO (First-In-First-Out Approach)
FIFO is the method of ensuring that the products that have been sitting on your shelves the longest are sold first. Utilizing this technique is essential for perishable goods, and even to ensure non-perishable goods are presentable (preventing the worn-out look of boxes and product packaging). This tactic will ensure that customers are receiving products from you that are in their best possible condition.
2. Use Bar Code Data Collection
If you are looking to build a profitable business based on the inventory you have, manually collecting data regarding your products is a waste of time and money. One of the best ways to efficiently keep track of your inventory while also monitoring the amount of time it takes for specific items to sell is through bar code data collection. Instead of manually entering the data regarding products, you can quickly scan a barcode that holds all the necessary information you need. This method ensures greater accuracy and decreases the amount of time it takes to process or track materials.
3. Conduct an ABC Analysis
How can you keep an eye on the value of your products, and determine what you need to order more of and what you may need to cut? Failing to track this information could cause you to be unable to fulfill popular orders, or pay more for items that are not contributing to your bottom line. ABC analysis is a process that helps you put your products into three categories:
- A-grade items: These are items that are great sellers and are not costing you a lot to store.
- B-grade items: Middle of the road products that sell an average amount, but that are also more expensive than A-grade items to store.
- C-grade items: Any of the other inventory that is not selling as well and is costing you a lot of money to keep in your warehouse.
While you definitely want to increase your inventory of A and B-grade items, you want to use this process to find what the C-grade products are and either eliminate or significantly limit the number you currently have in storage.
4. Develop Safety Stock and Have an Emergency Plan
Your projections may not always be correct. The market could move in a way that you did not expect. As a result, you need to plan for these situations if they occur. One of the best ways to do this is to have safety stock on hand. This method will allow you to guard against stock outs, unexpectedly long lead-times, and unforeseen rising demand. Take a look at your current numbers of items sold for certain products and compare this with past trends. You can then get a sense for the amount you need in case of a sudden change in demand.
However, in addition to safety stock, you also need an emergency plan. There are a variety of scenarios that could occur, and you need to have a way to manage all of them:
- Your vendor may not be able to supply material.
- You don’t have enough space to handle a sudden increase in demand.
- A new product launch doesn’t go as planned.
- You find that you don’t have the money to produce or ship a product at the time you promised.
- A product is shown to have defects and needs to be discontinued or recalled.
- You don’t have enough material to handle a sudden hike in demand.
Take time to go over these—and other—problematic scenarios and plan for how you will deal with them on the inventory side.
5. Have the Right Software Tools
A simple Excel spreadsheet will no longer due. You need a dynamic system that will allow you to manage your inventory levels, automate shipping, efficiently collect product data, process payments, manage orders, and track long-term sales trends. You need a software tool that makes inventory management much more convenient and easier to handle. So, look for systems that allow you to accomplish inventory-related tasks while also integrating vendor and customer relationship management and payments. While it is possible to get two or three separate systems, try to find something that incorporates as many aspects of the inventory process as possible.
According to Wasp Barcode, 43% of SMBs don’t track inventory or use a manual process. Also, “Days Outstanding,”—the amount of stock on hand based on average sales per day—has risen 8.3% over the past five years.
If unchecked inventory can drive up your costs and make it challenging to meet your customer’s shipping and service expectations. So, take a look at the methods above, take time to research additional tactics that can help, and invest in a robust inventory management system. In the long run, doing all three of these things can help you optimize how you handle inventory and meet your sales goals.