Good inventory management is at the core of a successful company. Effective inventory management ensures accountability and company performance tracking.
Managing inventory is, however, easier said than done. Managers have sleepless nights over their inventory management setup. Incompetent staff is a good scapegoat, but the problem is mostly in the system itself.
An ineffective inventory system drains company cash. It can also put you at loggerheads with the taxman.
Although each business has unique needs, there are a few inventory management tips that apply across the board. Read on to find out how you can have an effective inventory management system for your business.
Managing Inventory: The Basics
Inventory management is a game of numbers. Unlike other games, inventory management is rarely fun. So what exactly is inventory management?
Inventory management is a crucial part of company logistics that involves systematically ensuring goods are in the right amount at any time.
Two things make your inventory management inefficient. These are:
Understocking: Which means your supply does not meet customers’ demand.
Overstocking: Meaning you have excess stock resulting in wastage and inadequate storage space.
An effective inventory management setup addresses these two issues. The system makes sure only the right amount of items are available at a particular point.
How to Manage Inventory Effectively
If you want to tweak your inventory system to be more efficient. Here are a couple of things you should try out.
1. Have Forecasting on Lock
Nobody knows the future, that’s for sure. Fortunately, there are pretty accurate techniques that help you get an idea of future demand.
Projected sales are where your focus should be. Remember you shouldn’t be too optimistic. You should base your forecasting figures on pure facts.
Historical sales and market trends are some factors you should consider. The forecast should also match your marketing efforts to avoid under-delivering.
2. Inventory Prioritizing
You should group your inventory into priority categories. The “hot cake” products get the highest priority. These are products that sell out pretty quickly.
Categorizing enables you to balance supply with demand. You can prioritize your products alphabetically. “A,” representing the highest priority products, to “Z” if necessary.
3. Product Information Is Key
Keep track of all your product information. Doing so is not easy, but it helps significantly. Suppliers’ info, SKUs, and barcode data are info you should have on lock.
You should also monitor the market cost of your goods. In doing so, you can align your sales to the market trends. You, therefore, avoid overpricing or underpricing your goods.
Overpricing is detrimental to your sales. While under-pricing makes it sell out quicker than expected.
4. Do Restocking Yourself
Some suppliers will offer to take care of the reorders for you. Sound like a good thing, but there are some drawbacks.
Vendors don’t align with your company’s organization. Although you may save on time, there might be a huge mix-up with time.
Remember, suppliers want to sell off their products as quickly as possible. You, on-the-other-hand, want to maintain a proper stocking and selling balance.
Politely decline any offers to handle your inventory unless they can integrate their offer into your company’s inventory system.
5. Audit Your Inventory
Audit your inventory periodically at set intervals. You may do your audits once a month, once a year, or even weekly. As long as everything adds up in the end, you’re alright.
Auditing is not easy, but it is essential for good inventory management. It is important to do an exhaustive physical count at least monthly. Doing so ensures your inventory matches what you think you have.
6. Have a Good Supplier
An inconsistent supplier is detrimental to your inventory management. You may be doing everything right, but the supplier lets you down.
If your supplier delivers late or doesn’t match company expectations, then take action. You might have to drop the supplier for a better one.
A trusted and reliable supplier is vital for good inventory management. You can discuss with your supplier on how to improve their part. If discussion doesn’t work, then consider switching your supplier.
You can take things up a notch with supplier compliance evaluation. This evaluation ensures your supplier and inventory go hand in hand.
7. The 80/20 Rule, Apply it
The 80/20 rule is a great inventory management tactic. The rule stipulates that 80% of your profit comes from 20% of your stock.
Give priority to the 20% during inventory management. When you do so, you ensure that the cash cow products are always in stock.
Have a firm understanding of the products’ sales cycles. Then determine how much of the product you need in a certain period.
Remember, this 20% of products are the company’s cash cows. Neglecting them could be bad for your profits.
8. Embrace Technology
Integrating technology into your inventory management is always a good idea. Your manual system probably works well now. A couple of years after your business grows, it might not work so well.
The future of inventory management is digital. That said, your business needs to be competitive. Mobile scanners and POS terminals are a good start.
Ensure you have proper inventory management software to help manage inventory. You should integrate this software with other company technologies. For instance, have your POS interact with the software to keep accurate tabs of sales and stock.
Tweak Your Inventory Today
Hopefully, you now know how to make your inventory management effective. First, focus on the sales aspect of managing inventory. You can then proceed and have a good technical team to help you with the technology aspect.
Remember, effective inventory management system translates to greater profits. Good inventory management could give your company an edge over its competition.
Your supplier is at the core of a good inventory management. The problem may not be with you but with your vendor. So invest in a good supplier compliance service for your company’s benefit.
Look at our other articles for more informative and captivating reads.
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