As a small business owner, you need to keep an eye on all facets of the business to ensure its survival and growth. You cannot slack on any aspect of running a business as it will eventually come and haunt you in the long run.
When we talk about the various aspects of running a business, we mean everything that you have to do to keep your business afloat and profitable. To keep your current ratio high and reduce your stock-out costs, you need to have sufficient inventory management policies in place.
To know where you stand in terms of inventory management currently, you need to answer a few simple questions. How has your small business inventory panned out as of yet? Do you have all of the required products available when they are needed by the customers? Do you think you’ve lost out on potential sales because you didn’t have a potential item available on an urgent basis? How much are you spending on your holding costs? Do you think you are overspending on inventory holding costs and can cut down on them?
Based on your responses to the questions above, this article can aid you in ways more than one. In this article, we discuss all the basic techniques and methods of inventory management. We look at the best practices for managing inventory and how inventory management software can assist you. In short, we shed light on all of the best practices followed in the market for inventory management. Not only will you learn inventory management 101 here, but you’ll also discover some amazing tips and tricks in the market.
What Is Inventory Management?
For those who are alien to this concept yet, inventory management is a basic part of running a business and comes under the broader heading of supply chain management. Supply chain management deals with having all the right products with you to sell or manufacture in the right quantity.
Many businesses confuse inventory management as the equivalent of stacking multiple inventory stocks in their warehouses. While overstocking on inventory is a safe practice, neither is it efficient nor does it come under the definition of inventory management. Inventory management is the flow of inventory in a manner that does not disrupt your profitability or your expenses. Excess inventory is always a recipe for failure, as it hides the inefficiencies of your processes. Hidden under excess inventory are all operational flaws at your end and the supplier’s end. It is only when you reduce buffer stock and work at just the right quantity of inventory, would you realize just how much stock your business requires to operate.
Through effective inventory management, you cannot just improve the efficiency of your business, but can also reduce costs that come with handling excess inventory. Be smart with inventory management and you’ll reap the due rewards.
Inventory Management Software
Inventory management software is one of the latest innovations in inventory management. You can use this software to increase your overall efficiency and help your staff in managing inventory in a better manner.
Once you employ inventory management software, you can expect to enjoy the following benefits:
- Keep an eye on your inventory in real-time
- Improve cash flow, increase your working capital and reduce the costs associated with handling inventory.
- You can use inventory management software for predicting future demand
- You can use such software to prevent any demand shortage
- It allows for easy analysis across the board
- Prevents overstocking
- Can be accessed from the retail POS in your store
- Can add efficiency to warehouse organization
- Can help you track inventory across warehouses
- Offers quick bar code scanning
Using inventory management software you can do all of the above while also tracking your inventory across multiple locations.
Inventory Management Techniques and Best Practices
We now get to discuss the best inventory management techniques and practices. Go through these best practices and form an idea of how inventory management can help you.
Fine-tuning your forecasting to display accurate results is essential for your business. We say so because your inventory procurement estimates would be based on how you have forecasted sales and demand for the coming period. If your forecasting isn’t final and foolproof, you would fail to get the kind of efficiency that you are looking for.
Numerous factors can be included in your calculation while forecasting your inventory. To begin with, you should make an estimate based on historical sales figures. You should estimate your demand for the next financial year based on the sales you had during the previous financial years. Additionally, you should also use market trends, predicted growth, marketing efforts, the state of the economy and the promotions you plan on running for predicting demand.
All of the factors above can influence the demand for your products, and this is why you should stock or forecast your inventory needs, based on these factors. If you plan on running a promotion in the coming financial year, you must make sure to forecast more sales because of heightened customer interest due to the promotions. Additionally, the state of the economy you operate in can also weigh in to impact your forecast. Your forecast should consider the rate of inflation and should consider the buying power of the people around you. Has the buying power increased or decreased with time? Know the answer to this question for computing your forecast for the year to come.
Use FIFO Approach
FIFO is a method of inventory valuation and management which has become popular with many users. For those who aren’t aware of it, FIFO spells out as First-In-First-Out. According to this inventory management rule, you should sell out goods in the same order that they are first manufactured or purchased.
This method applies even more for goods that happen to have a finite shelf life. These goods include food items, makeup, medications, and flowers. A bakery owner should be aware of the shelf life of their baked goods and should sell goods following the FIFO style of inventory management.
Implementing the First in First out ideology in your business is not an impossible thing to do. You need to start by warehousing your goods in the best manner possible so that there are no disruptions involved in the process. You can store your goods by adding all new items at the back while storing old products at the front. As you keep selling the older products, you should start bringing the newer items in front. This will ensure that you end up selling items you buy first before the items you buy at a later date.
Identify Low Turnover Stock
Inventory management is a requirement that most supermarkets should follow for the best results. If you have stock within your inventory that you haven’t yet sold, then you should make sure that you stop stocking that item altogether. Most supermarkets stock a variety of items, which is why they have to take care of the estimated turnover time for all of their items.
If a particular item isn’t getting good sales, then you either have to reduce the speed at which you are stocking item for that inventory, or should just stop stocking it all together. You need to calculate the economic benefit of stocking different items, and should not go for items that do not offer a good economic benefit.
Additionally, if you are facing trouble in selling off a certain item, then you have to go for the tried and tested approach of running promotions. You should run promotions that help you sell off stock that is nearing expiry date or is taking up excess space inside your retail outlet.
Audit Your Stock
While good inventory management software can kick out the need for auditing your stock, you still have to remain wary of the stock levels inside your retail outlet to make sure that you have what you think you have.
A physical audit of your stock is a necessity in this day and age. Stock theft and other risks keep happening all the time, which is why a physical count of your stock will help you keep an eye on your stock levels.
Most retail outlets use different approaches to managing stock levels. The most common approach is to count all stock levels at the end of every financial year to make sure that you have what you think you have. Stocking issues are best managed in time so that you don’t risk the financial safety of your business.
Use Cloud-Based Inventory Management Software
Cloud-based inventory management software takes the benefits of inventory management software up a notch by adding real-time results to it. The cloud is famous for providing businesses with a real-time analysis that can help them in making a thorough analysis and reaching results.
Your stock levels are duly monitored on the cloud and are adjusted based on what you want to achieve and the goals that you have in mind.
Most cloud-based management software will get in touch with the point of sale at your retail outlet and make adjustments in stock based on how you handle inventory at your point of sale stall. You can also receive daily alerts through such a statement based on the cloud. These alerts tell you of the stock availability inside your business so that you can prepare your stock accordingly.
Track Stock Levels At All Times
As you might already know by now, tracking stock levels is a necessity when you are running a retail outlet. You ought to know exactly the right quantity of everything that you have in stock with you. Knowing stock levels cannot just help you with managing it, but also ensures that you’re able to meet the goals that you have in mind. Effective software can save you a lot of time and effort.
Reduce Repair Time
If you’re in the manufacturing side of things, then you have to reduce your repair time as much as you possibly can. You need to make sure that you don’t take much time repairing your equipment. Imagine a machine is a vital part of your equipment processes. You might spend significant time repairing it, which can lead to multiple problems.
The downtime you waste in repairing your equipment can come back and haunt you in the long run. You should make sure that your equipment is repaired in as little downtime as possible. Downtime should be kept as little as possible, because you cannot seriously waste time on your manufacturing processes, and risk losing customers because of a lack of finished goods.
Don’t Neglect Quality Control
This again applies to organizations that manufacture their goods themselves. You shouldn’t neglect the importance of quality control in ensuring the success of your business. Regardless of how hard you try to achieve success, the quality control protocols you follow define the satisfaction of your employees.
Oftentimes organizations speed up their production processes at the thought of more finished goods and end wrecking up the entire quality control process. Your customers won’t be satisfied with your products anymore, and will not give you the kind of good reviews you need. If you want positive reviews from your customers, then you should make sure that the quality protocols you follow are in line with what they expect.
You can implement thorough quality control measures, or can make the process easier to follow by handing over the tasks to your current employees. Hire a couple of employees to run a quality audit on the products you have ready to sell weekly. The quality audit will help you make sure just how many of your goods are ready to sell. Even the smallest deficiency should be noted here so that your organization is ready to step up the game.
Hire a Stock Controller
Inventory management is all about controlling and managing your stock in the best manner possible. Even the slightest mistake here can damage your progress, which is why you need to take the step forward and hire a stock controller. A stock controller will work on the inventory inside your store or manufacturing business and will make sure that everything is kept under one check.
Not only would the stock controller keep a check on inventory you have under control right now, but would also keep a check on all purchase orders and receivables. They will let you know how your stock ordering process is progressing, and whether you have any payments or dues that you should clear in the time to come.
The stock controller can be given a couple of people to work under them, who can complement their efforts and make sure that inventory management is on track without any flaws whatsoever. Your inventory management process also includes the supply chain process, which is why you should keep an eye on the processes that you should follow for maintaining a good supply chain.
Have the Right Budget Ready
Budget is perhaps one of the most important parts of flawless inventory management. You have to maintain the right budget at all times because you can risk losing out on inventory procurement and purchase if you don’t have access to money.
Cash, as we all know, is the oil that keeps the engine of your business running. To make sure that you keep procuring inventory and that your customers don’t go back empty-handed, you should make sure that the cash reserves are present in a copious amount.
If you ever run out of cash or working capital, it is best to get a small business loan from a private lender on the internet. There are numerous private lenders on the internet that can help you get a small business loan without a lot of effort.
We realize how banks can be stringent with the process, which is why you need to head over to a private lender for assistance in this regard. Private lenders don’t check your credit score during the approval process and make sure that your loan is approved without creating any hindrances.
Once you get the right inventory reserves, you can eventually sell them off and repay your small business loan using the easy repayment plan that a private lender will give to you.
Merchandising Tips for Your Retail Space
Inventory management also includes placing your inventory in such a way that it attracts attention from the people coming to visit your store. Retail stores across the globe focus on inventory management, including the art of visual merchandising. While good supply chain and inventory management can help you bring products to the shelf at the right time, how you place them will eventually seal the deal for you.
You can keep customers inside your store for a longer time by using great visual merchandising tips. And, when you keep your customers inside the store for a longer time, you will also enjoy a chance to increase your sales made through them.
Here we look at some of the visual merchandising tips you can follow to make selling to certain segments of the market easier for you.
Engage All Senses
While merchandising usually focuses on the aesthetics or the visual sense of purchasers, you can integrate all senses and sell by engaging them. By capitalizing on the opportunity to engage all senses you can help increase your sales and grasp the attention of customers inside your store.
To know how customers feel about shopping at your store, you need to do your research on the following questions:
- How do customers feel when they walk inside your retail outlet?
- What are the major factors driving what consumers feel?
- Do they feel overwhelmed or underwhelmed by the aesthetics that you have inside of your store?
- Are all of their senses being engaged through the stimuli present inside the store or are you unable to engage all of the senses?
Answers to these questions will help you identify the best way forward for visual merchandising.
You can engage all the senses of your customers through the following means:
You can engage your customers through their sense of hearing by playing music inside the store. Music goes a long way in impacting the environment inside a store, so many sure that you make a thoughtful playlist. A softer beat is recommended for keeping your customers inside the store for longer.
This is necessary, as you have to use visual cues such as lighting, balance, placement, and color for getting your customer’s attention for cementing the deal.
Allow customers to touch items and place them within their arm’s length, without much of a distance. Visual cues can be perfect for directing the attention of your customers towards a specific display. They will like judging the product by touching it.
The sense of smell happens to connect at an emotional level with buyers. You can design scents so that your customers can relate to your products. This strategy works well for perfume manufacturers.
You can use the sense of taste to your advantage by allowing customers to taste a specific product when they are buying from you.
Besides engaging the senses, you should also make sure that you have the right signage implemented across your retail space. If you have a promotion going on, make sure that you market it well and get the attention of your customers. Have separate signage for running a promotion and attract your customers to it through proper marketing. The signage should be placed at a pertinent location so that the customers coming into your retail space know about the promotion you are hosting.
The tips and strategies mentioned above can help you improve your understanding of inventory management for extracting the best results possible.
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