Skip to main content

Inventory Management means saving Money

Start saving by using these 

8 Inventory Management Techniques

Image result for inventory problems

Why Inventory Management Is Important

Holding inventory ties up a lot of cash. That's why good inventory management is crucial for growing a company. Just like cash flow, it can make or break your business. 

Inventory Management Saves You Money

Good inventory management saves you money in a few critical ways:
Avoid Spoilage
If you’re selling a product that has an expiry date (like food or makeup), there’s a very real chance it will go bad if you don’t sell it in time. Solid inventory management helps you avoid unnecessary spoilage.
Avoid Dead Stock
Dead stock is stock that can no longer be sold, but not necessarily because it expired. It could have gone out of season, out of style, or otherwise become irrelevant. By managing your inventory better, you can avoid dead stock.
Save on Storage Costs
Warehousing is often a variable cost, meaning it fluctuates based on how much product you’re storing. When you store too much product at once or end up with a product that’s difficult to sell, your storage costs will go up. Avoiding this will save you money.

Inventory Management Improves Cash Flow

Not only does good inventory management save you money, it also improves cash flow in other ways. Remember, inventory is product that you’ve likely already paid for with cash (checks and electronic transfers count as cash too), and you’re going to sell it for cash, but while it’s sitting in your warehouse it is definitively not cash. Just try paying your landlord with 500 iPhone cases.
This is why it’s important to factor inventory into your cash flow management. It affects both sales (by dictating how much you can sell), and expenses (by dictating what you have to buy). Both of these things factor heavily into how much cash you have on hand. Better inventory management leads to better cash flow management.
When you have a solid inventory system, you’ll know exactly how much product you have, and based on sales, you can project when you’ll run out and make sure you replace it on time. Not only does this make sure you don’t lose sales (critical for cash flow), but it also helps you plan ahead for buying more so you can ensure you have enough cash set aside.

8 Inventory Management Techniques

Inventory management is a highly customizable part of doing business. The optimal system is different for each company. However, every business should strive to remove human error from inventory management as much as possible. This means taking of advantage inventory management software. If you run your business with Shopify, inventory management is already built in.
Regardless of the system you use, the following eight techniques to will help you improve your inventory management—and cash flow.

1. Set Par Levels

Make inventory management easier by setting “par levels” for each of your products. Par levels are the minimum amount of product that must be on hand at all times. When your inventory stock dips below the predetermined levels, you know it’s time to order more.
Ideally, you’ll typically order the minimum quantity that will get you back above par. Par levels will vary by product based on how quickly the item sells, and how long it takes to get back in stock.
Although it requires some research and decision-making up front, setting par levels will systemize the process of ordering. Not only will it make it easier for you to make decisions quickly, it will allow your staff to make decisions on your behalf. 
Remember that conditions change over time. Check on par levels a few times throughout the year to confirm they still make sense. If something changes in the meantime, don’t be afraid to adjust your par levels up or down.

2. First-In First-Out (FIFO)

“First-in, first-out” is an important principle of inventory management. It means that your oldest stock (first-in) gets sold first (first-out), not your newest stock. This is particularly important for perishable products so you don’t end up with unsellable spoilage.
It’s also a good idea to practice FIFO for non-perishable products. If the same boxes are always sitting at the back, they’re more likely to get worn out. Plus, packaging design and features often change over time. You don’t want to end up with something obsolete that you can’t sell.
In order to manage a FIFO system, you’ll need an organized warehouse. This typically means adding new products from the back, or otherwise making sure old product stays at the front. If you’re working with a warehousing and fulfillment company they probably do this already, but it's a good idea to call them to confirm.

3. Manage Relationships

Part of successful inventory management is being able to adapt quickly. Whether you need to return a slow selling item to make room for a new product, restock a fast seller very quickly, troubleshoot manufacturing issues, or temporarily expand your storage space, it’s important to have a good relationship with your suppliers. That way they’ll be more willing to work with you to solve problems.
In particular, having a good relationship with your product suppliers goes a long way. Minimum order quantities are often negotiable. Don’t be afraid to ask for a lower minimum so you don’t have to carry as much inventory. 
A good relationship isn’t just about being friendly. It’s about good communication. Let your supplier know when you’re expecting an increase in sales so they can adjust production. Have them let you know when a product is running behind schedule so you can pause promotions or look for a temporary substitute.

4. Contingency Planning

A lot of issues can pop up related to inventory management. These types of problems can cripple unprepared businesses. For example:
  • Your sales spike unexpectedly and you oversell your stock
  • You run into a cash flow shortfall and can't pay for product you desperately need
  • Your warehouse doesn’t have enough room to accommodate your seasonal spike in sales
  • A miscalculation in inventory means you have less product than you thought
  • A slow moving product takes up all your storage space 
  • Your manufacturer runs out of your product and you have orders to fill
  • Your manufacturer discontinues your product without warning
It’s not a matter of if problems arise, but when. Figure out where your risks area and prepare a contingency plan. How will you react? What steps will you take to solve the problem? How will this impact other parts of your business? Remember that solid relationships go a long way here.

5. Regular Auditing

Regular reconciliation is vital. In most cases, you’ll be relying on software and reports from your warehouse to know how much product you have stock. However, it’s important to make sure that the facts matche up. There are several methods for doing this.
Physical Inventory
A physical inventory is the practice is counting all your inventory at once. Many businesses do this at their year-end because it ties in with accounting and filing income tax. Although physical inventories are typically only done once a year, it can be incredibly disruptive to the business, and believe me, it’s tedious. If you do find a discrepancy, it can be difficult to pinpoint the issue when you’re looking back at an entire year.
Spot Checking
If you do a full physical inventory at the end of the year and you often run into problems, or you have a lot of products, you may want to start spot checking throughout the year. This simply means choosing a product, counting it, and comparing the number to what it's supposed to be. This isn’t done on a schedule and is supplemental to physical inventory. In particular, you may want to spot check problematic or fast-moving products.
Cycle Counting
Instead of doing a full physical inventory, some businesses use cycle counting to audit their inventory. Rather than a full count at year-end, cycle counting spreads reconciliation throughout the year. Each day, week, or month a different product is checked on a rotating schedule. There are different methods of determining which items to count when, but, generally speaking, items of higher value will be counted more frequently.

6. Prioritize With ABC

Some products need more attention than others. Use an ABC analysis to prioritize your inventory management. Separate out products that require a lot of attention from those that don’t. Do this by going through your product list and adding each product to one of three categories:
A - high-value products with a low frequency of sales
B - moderate value products with a moderate frequency of sales
C - low-value products with a high frequency of sales

Items in category A require regular attention because their financial impact is significant but sales are unpredictable. Items in category C require less oversight because they have a smaller financial impact and they're constantly turning over. Items in category B fall somewhere in-between.

7. Accurate Forecasting

A huge part of good inventory management comes down to accurately predicting demand. Make no mistake, this is incredibly hard to do. There are so many variables involved and you’ll never know for sure exactly what’s coming—but you can get close. Here are a few things to look at when projecting your future sales:
  • Trends in the market
  • Last year’s sales during the same week
  • This year's growth rate
  • Guaranteed sales from contracts and subscriptions
  • Seasonality and the overall economy
  • Upcoming promotions
  • Planned ad spend
If there's something else that will help you create a more accurate forecast, be sure to include it.

8. Consider Dropshipping

Dropshipping is really the ideal scenario from an inventory management perspective. Instead of having to carry inventory and ship products yourself—whether internally or through third-party logistics—the manufacturer or wholesaler takes care of it for you. Basically, you completely remove inventory management from your business.
Many wholesalers and manufacturers advertise dropshipping as a service, but even if your supplier doesn’t, it may still be an option. Don’t be afraid to ask. Although products often cost more this way than they do in bulk orders, you don't have to worry about expenses related to holding inventory, storage, and fulfillment. 
It’s time to take control of your inventory management and stop losing money. Choose the right inventory management techniques for your business, and start implementing them today.
Credit: Casandra Campbell is an entrepreneur, craft beer nerd, and content creator at Shopify. for sharing the wonderful details. 

Comments

Popular posts from this blog

HUMAN RESOURCE PLANNING AT WIPRO

HUMAN RESOURCE PLANNING AT WIPRO Overview of Wipro Wipro started   as vegetable oil company in 1947  Azim Premji, a graduate in Electrical Engineering from Stanford University, at the age 21, repositioned and transformed Wipro (Western India Vegetable Products Ltd) into a consumer goods company  Producing hydrogenated cooking oils, laundry soap, wax and tin containers. 1975 - Wipro Fluid Power to manufacture hydraulic and pneumatic cylinders. At that time, it was valued at $2 million. 1977 - Entry into information technology sector. 1979 - developing its own computers 1981 - selling the finished product. 1980 - moved in software development 2000 - Wipro Ltd ADRs were listed on the New   York Stock Exchange. Employs more than 1,00,000 people in over 50 countries.  A career at Wipro means to learn and grow continuously, opportunities to work on the latest technologies alongside the finest minds in the industry, competitive sala...

Three Tips for Motivating Your Customer Service Team

Three Tips for Motivating Your Customer Service Team Scripting exactly what customer service employees should do in every situation drains the initiative out of even the most highly motivated workers ! But when you set up a system that enables you to trust your employees to exercise their own judgment and learn from their experience, they may well deliver a far better customer experience. (1) Establish guardrails !  People handling calls should understand where they have latitude and where they don’t. Within those guardrails, your team should be free to exercise judgment. (2) Seek feedback.  Ask customers for feedback after each transaction. Circulate the comments to team leaders so they can see where they’re succeeding, where they still have work to do, and what, specifically, your customers point out. (3)Coaching and support.  Free your supervisors and experienced customer care professionals from some tasks so they can devote...

Create a Work Environment That Encourages Employee Engagement

Create a Work Environment  That Encourages Employee Engagement Your Managers Are Key When You Want Engaged Employees BY  SUSAN M. HEATHFIELD Does your workplace encourage employee engagement? Probably not. But, it should. It's a powerful factor in your business success. Engaged employees are more productive, customer-focused, and profit-generating and employers are more likely to retain them. According to the Gallup organization, employee engagement is a necessary strategy for companies that want to succeed in the marketplace.  Employee engagement is not a Human Resources initiative that managers are reminded to do once a year. It's a key strategic initiative that drives employee performance, accomplishment, and continuous improvement all year long. It's the outcome from how your organization interacts with people to drive business results. Just as organizations cannot create employee empowerment, employee motivati...