Transform Your Inventory Management to Grow Safer
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If your small business is on the fast track to becoming a big business, you may have already found that keeping up with your inventory is a challenge. But you have never backed down from bumps in the road, and you do not plan to start now. With the following tips, you can keep your inventory straight and your profits headed skyward.
Learn how to audit
Auditing is simply the process of knowing what you have and where it is. When you keep a large stock, one way to audit your inventory is to count what is on the shelf physically. You can designate a time each week to walk the aisles of your stockroom to put your hands on your merchandise. You can use color-coded stickers to give you a quick visual of what has been counted and if any problems were noted during the audit.
Instead of counting inventory by hand, consider incorporating inventory tags. Bar coding technology allows businesses to track and locate their inventory whenever they need to. Inventory tagging works best when paired with an inventory management system.
Use inventory-tracking software
Inventory-tracking software turns data input into reports you can read. These are expensive, however, but your point-of-sale system may already have integrated technology that serves a similar purpose. Point of sale software is often designed to do much more than process payments. These systems can track daily, weekly, and monthly sales to help you keep tabs on your inventory and more accurately forecast future needs.
Remember FIFO (first in, first out)
First in, first out. This is the order in which all your stock should enter and exit your building. This is important for all assets but especially those that are perishable or time-sensitive, such as food or items with a year stamp. If possible, set up your warehousing shelves so that new stock is loaded from the back, which will encourage you and your shipping staff to send out the oldest goods first. Ideally, you will have audited these regularly, and you will know the date they arrived and the last time they were checked for quality.
Ditch unsold goods ASAP
While you likely believe in every product you sell, numbers do not lie. If you have goods that have been sitting for more than half a year, it is time to drop the price and move them through the doors. If you can’t afford to take a loss, calculate your total product cost, which AccountingTools explains is the sum of factory overhead, labor, materials, and production supplies. Mark these items down to just over cost. If they still do not capture your customers’ attention, it is time to donate them for a tax write off. Remember, anything taking up space that does not sell costs you money every moment it collects dust.
Know your stock levels 100 percent of the time
This goes back to the auditing process. If done correctly, there will never be a question of how many X you have on the floor at any given moment. The inability to answer questions about current stock might point to a larger problem and can lead to overproduction and under-performing profits.
Group items by priority
If you’ve never heard of the 80/20 rule, take the time to understand this concept, and then prioritize your inventory based on it. Simply put, the 80/20 rule, as it applies to your inventory, means that 80 percent of your assets only account for a small portion of your profits. The other 20 percent is your “bread and butter” items. If you do not have time to audit and inventory your entire warehouse each week, do make the time for those products that make you the most money.
Do not hold inventory of low-performing products
While it is in your best interest to quickly offload items that do not sell, there might be some that sell well but in small volume. Instead of taking up shelf space for these, consider switching to a dropship model. If you are unfamiliar with this type of inventory and shipping system, you can take a quick refresher online (Udemy offers a course for less than $35). At the very least, do your best to create a lean inventory system where you keep only what you need on hand in your warehouse.
If you want to know what you have and what you need, consistency is the key. You must be consistent in everything you do, from how you process orders to how you schedule ordering your own stock and planning your future forecasts. Your entire staff should be fully versed in the entire order processing so that each department can accurately communicate with each other regarding your inventory.
Determine if your suppliers are keeping up
Your suppliers are crucial to your business. Unfortunately, you cannot always count on them to deliver goods and services when you need them. While an occasional missed deadline is to be expected, when it becomes a habit, there is a problem. A bad supplier, whether they are often late or send damaged goods, can ruin your reputation. Keep an eye out for potential problems and do not be afraid to conduct a supplier audit when your bottom line is on the line.
Hire a dedicated stock manager
Up to this point, you have probably managed everything from greeting customers to counting your own stock. While there is nothing wrong with this methodology, as you continue to grow, you are going to need help. When your business relies heavily on inventory, it might be in your best interest to hire an individual to oversee inventory management. Betterteam’s job description of this position notes that this person will be responsible for implementing an inventory-tracking system, confirming that all newly arrived or manufactured products are ready to ship, and preparing reports on everything from stock levels to inventory adjustments.
You cannot leave your business’s livelihood up to your memory or to an occasional glance at the shelves. As your company continues to grow, so too should your interest in how to manage the flow of merchandise from the time it is taken in until it is sold. It does not matter if you are a small-town flower shop or a multi-million-dollar manufacturer; your inventory is the backbone of your business, and you cannot afford to neglect managing it.