A retail business’s inventory is among its most precious assets.
As it has been proven to be the case, in the global ever-growing economy, for inventory-intensive industries such as retail, hospitality, and manufacturing, an entity’s finished products, raw materials, and other components are at the heart of its business.
Therefore, a shortage of inventory at critical times can have devastating effects on the business.
Even though inventory is usually classified as an asset, it can also be considered as a liability.
This is because the stock may get spoiled, get affected by shifts in demand, get stolen, or even damaged.
It is therefore important to ensure that the inventory is properly insured. If a retail company fails to find buyers in time, it may be forced to destroy the inventory (especially in the case of perishable commodities) or sell at throw-away prices.
It is therefore important for businesses that operate in other industries to formulate and implement good inventory management strategies.
In this article, we are sharing some best practices for setting up your inventory management system. These tips will help you cut losses and improve overall profitability.
What are the benefits of good inventory management?
The following are the reasons why organizations should put in place proper inventory management systems:
1) Enhances the accuracy of orders
A good stock management system can help you establish precisely how much inventory your business should have at hand. It can help prevent cases of product shortages and also enable you to maintain adequate stock, without necessarily having too much stock in the warehouse.
Remember that spare capacity in terms of warehouse space is just as important as avoiding running into product shortages.
2) Attract and retain customers
Proper management of stock plays an important role in attracting and retaining customers. There is no doubt about that.
Customer loyalty is what every business yearns for, especially in terms of brand building and identity. Organizations that wish to make their customers keep coming back for more, must have the will and capacity to efficiently fulfill their often varying demands over time.
Proper stock management can help businesses meet their customers’ needs by enabling them to have the right commodities at hand if and when the need arises.
3) More organized warehouse
A proper inventory management system can help your business have a more organized warehouse. An organization with a disorganized warehouse facility can create a very difficult work environment for employees stationed at the procurement and supplies department.
A disorganized warehouse will ultimately compromise your production efficiency.
“Many organizations optimize their warehouse facilities by ensuring that fast-moving commodities are put together in locations that are easily accessible. This strategy speeds up the whole process of order fulfillment and makes customers happy” explains Shop375.
4) Boost productivity and efficiency
Computer software, barcode scanners, and other inventory management tools can significantly enhance productivity and efficiency.
The tools can help minimize or completely get rid of manual processes. As a result, employees can concentrate on more important and urgent issues affecting the entity.
5) Save valuable resources such as money and time
Good inventory management can offer significant monetary and time-saving benefits. You can eliminate the need to recount stock to ensure the accuracy of records by taking real-time stock of all products that you have ordered for as well as stock-at-hand.
A good strategy can also help save time and money that would have otherwise been spent on slow-moving or unpopular products, furthermore it can be beneficial for your market expansion strategy.
Also read – Benefits of using a good inventory management software.
Inventory Management Techniques
The following are effective and efficient strategies that you can use to manage the inventory:
- Setting per level – involves setting a minimum volume of products that has to be readily available at all times.
- Drop-shipping – an arrangement whereby the whole inventory process is taken care of by wholesalers or manufacturers. Check out how dropshipping works.
- First In First Out – selling goods in the order in which they were procured from primary producers. FIFO is suitable for goods such as food products and prescription drugs.
- Accurate forecasting – involves the projection of future sales while basing on factors such as market trends, overall state of the economy, past sales volume, seasonality, and assured sales from subscriptions, among other factors.
- Proper relationships management – it is important to establish healthy relationships with suppliers because you may need to return slow-moving commodities, suspend the procurement of certain products or re-stock fast-moving commodities.
- Using an Intermediary – Foreign companies also have the choice of selling products electronically through an intermediary. If a company does not want to have to handle inventory, this technique is preferred. This liability and allocation can be transferred to the intermediary.
Check out the 12 inventory management techniques to cut losses.
Tips on setting up an effective inventory management system
The importance of having an effective inventory management system cannot be overemphasized.
Since it involves ordering, stocking, and using a business’s materials or products, it could disturb the execution of orders if not efficiently put in place.
There is a reason why customers like to visit amazon or Shopify. It is not just because they want a trusted destination where they can purchase a wide variety of goods. It is also because there is nothing like running out of stock with them.
If you are into online sales, perhaps you should borrow leaves from them.
Here are some tips they have put in place that have made them very effective.
- Have at least one person responsible for inventory. This will ensure that someone always has ready answers for any questions on inventory.
- Amazon and Shopify both use inventory management software. Though they have different software for the same purpose, there is no doubt that it helps them make things easier.
- Have a backup system in place for when data gets lost
- Use POS to track sales automatically.
- Do not spend too much on something that is expensive to store
- Always bargain with suppliers and consider if it is cheaper to buy in smaller quantities
- Have an effective inventory tracking system.
- Have a central database for this tracking. You can use a google spreadsheet so that all changes are immediately visible to everyone.
- Implement a proper stock optimization procedure so you don’t run out of inventory.
- Have discounts and promotions to get rid of stock that has stayed for too long. It is better that way than having to dispose of them if they are time-dependent perishable goods.
Other effective inventory management techniques are: prioritizing with ABC, contingency planning, and regular auditing (using methods such as physical inventory, cycle counting, and spot checking).
Good inventory management is without a doubt an important practice for camping companies as well as businesses in other sectors of the economy.
An organization that fails to keep a keen eye on its inventory, or fails to take stock of its accounts is undoubtedly setting itself up for myriads of possible challenges and errors related to inventory.
Inventory management can easily break or make a business. Keep the benefits described above in mind as you consider the cost of establishing or failing to establish a good inventory management system.
ProfitBooks is a popular inventory management software used by thousands of SMEs. It helps you to manage your entire inventory lifecycle right from purchase to sales.
It also offers tools for small manufactures to record the consumption of raw materials and the production of finished goods.
Best part is, its’ free to get started with ProfitBooks.
Create a free account today and start managing your inventory efficiently.