Managing inventory is crucial for any business that sells physical goods. It is one of the pillars of any retail company. Any mistake about it impacts your whole company and its results. By doing it right, you can reduce costs and losses. Thus, it results in a positive outcome.
What is Inventory Management?
Inventory management is the procedures and processes for ordering, receiving, storing, tracking, and accounting for all the goods a business sells.
That is why it is crucial to control them. Having a controlled inventory allows a company to reduce storage costs and lack of goods. Because if you don’t have goods in stock, you can’t have orders, so you don’t have income.
Stock shortages are one of the issues you can have with bad or no inventory management. It’s easy to overorder inventory when you don’t track them. With that, you allocate money to stock instead use it for other priorities.
Keeping too much unsold stock at the end of the year may increase your income tax bills.
Following is the step by step to managing your inventory.
Step by step to manage your inventory.
List your stock
List every item and its quantity and update it daily. You need to update your list every time an item arrives or leaves. Also, review and analyze the cost of every item in the stock. This activity prevents a lack of goods or buying them in excess. It is recommended that you have an employee take care of it daily.
Use an integrated inventory management system.
Managing inventory manually increases failures because we are human beings and often make mistakes. And doing it manually takes a lot of time.
It is essential to automate this process to be more efficient and faster. An integrated inventory management system registers when an item arrives or leaves and integrates with other departments, such as finance, sales, and cash flow. Another benefit is the reports generated by the software. So you can analyze all the information, such as cost, quantity, and volume of incoming and outcoming stock.
Train your employees
To have effective inventory management, all your employees should know how to do it. So, it is essential to train them regularly. Teach them how to use the software and follow the procedures and processes. By doing it, you will reduce a stock loss margin.
Define procedures and processes
Define procedures and processes to optimize your inventory management.
Create patterns and rules to organize the stock: Your warehouse or where your store your items should be organized and clean. Put the best seller items where you can move them quickly.
Check carefully when your item arrives: Double-check the invoice with the items delivered to avoid miscounting. The best practice is receiving stock against your purchase order and opening and checking all cases and containers. Don’t rely on box labels and supplier packing slips.
Determine who is responsible: Define who will be doing any process. Who checks the items when they arrive, who allocates them to the right place, and who will put the information on the software.
Track indicators: It is important to measure some indicators to have the correct information to decide.
Inventory turnover: It measures how long an item stays in your inventory until you sell it. Measuring it helps you to understand what items you sell more and need to replenish quickly. Also, what goods take more time to you to sell. With this indicator, you can decide if it is worth it to keep selling this item, which takes a long time. Also, promote them, even though you make less than 100% profit. Otherwise, you may lose the product.
Return rate: It indicates how many items return to your inventory after selling them in a period. With this indicator, you can figure out why this item returns frequently.
Contribution margin: It compares the sales pricing against the item cost. With this indicator, you can analyze if the item has the correct price to give your company the profit you want or if the cost is high.
Have rigidity control: You need to control everything always so you don’t lose anything. A weekly review helps you discover a gap in the system and how to fix it quickly.
Define a minimum and maximum volume for each item
Defining a minimum and maximum volume for each item is essential to your business because it avoids a lack of goods or buying in excess. Also, warn you when it is time to replenish an item.
To define it, you need to know a few pieces of information, such as Item turnover, sales pricing, vendor availability, and the time between receiving the item and delivery to your client. Based on these indicators, you can determine the minimum and maximum volume.
According to Forbes.com, here are the best tools for inventory management.
- Square POS: free basic POS system with a full suite of inventory tools
- Ordoro: advanced inventory system ideal for multi-warehouse and production operations
- Shopify POS: POS system catering to Shopify online, retail and multichannel sellers
- Lightspeed: advanced POS system for high-volume and multi-store sellers
- Clover: online POS and inventory system that integrates with many e-commerce solutions
- eHopper: designed for restaurants with ingredient-level inventory tracking
- monday.com: a step up from spreadsheets with inventory tools and reorder alerts
Bottom line
Inventory management is vital to any business that sells goods. It reduces losses, lack of stock, and buying excess. Thus, it avoids losing clients because you can’t deliver what they purchased.
Then, to have good inventory management, you must create procedures and processes so that every employee can follow them and keep the workflow.
Also, you must automate your processes with an integrated inventory management system. That will give you more time and efficiency to run your business.
Last but not least, always review your procedures and processes so that you can improve them to increase your profit.
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