Inventory management is one of the most important aspects of running a business. It plays a crucial role when it comes to profitability and cash flow.
If done properly, it can increase profits and improve sale. The basics are simple – have enough inventory to satisfy the demand yet don’t overstock. While it may sound easy on paper, managing inventory can be a very tough task for most companies.
Many companies have lost billions of dollars because of the mismanagement of their inventories. A good example is Walmart, which lot 3 billion dollars because it was out of stock during peak times.
If you want to stay ahead of the game, keep profits high, and tackle your competition then you have to stock up on what’s hot and in demand.
Let’s know more:
What is Inventory Management?
Inventory management is a collection of tools, techniques, and strategies to store, track, deliver, and order inventory.
Whether you have a small business or a huge one, whether you’re in the game for a long time or are just starting out, here are a few tips that you can use to manage your inventory more effectively.
Minimum Order Quantity
Minimum order quantity, also referred to as economic order quantity, is the lowest amount of inventory you must order to meet the customer’s demand so that you don’t go out of stock and don’t overstock either.
This helps reduce inventory as much as possible and keeps the cost of inventory as low as possible.
Use ABC Analysis
This is a method of sorting your inventory into 3 main categories depending on how well do they sell and how much they cost to store.
- A-items are the bestselling ones that don’t take too much of storage space or cost too much.
- B-items are the regular selling items but cost more than A-items.
- C-items are the ones that take too much of inventory space or are costly and do not sell well.
This will help you assess which items you need to order and stock up on more frequently and which items you don’t need to stock up on, hence increasing the profits and maximizing the returns.
Have Backup Stock Inventory
This is a small surplus inventory of the items that are high in demand that you keep tackling the variability in market demand.
This backup inventory can be significantly helpful in protecting you in case of a sudden spike in demand. Going out of stock can bring a lot of trouble This can be helpful during such times.
This is also important if you have to import your items from another country. You can seek the help of Fbabee freight forwarder to get the job done.
Follow the LIFO and FIFO Principle
FIFO stands for first in first out, which means that the first items to go in are the first ones to come out. If you’re dealing with perishable items like food inventory then you have to use this principle to avoid ending up with an obsolete inventory.
LIFO, on the other hand, stands for last in first out. Which means the last items added to your inventory are the first ones to sell out. If you have no perishable items, LIFO can be extremely helpful as you won’t have to rearrange your warehouse as the newly stored items will be easily accessible to take out of the warehouse.
Try Drop Shipping
Drop shipping is a business strategy that involves selling/shipping items that you don’t own or store.
This model is simple, you basically get an order from a client which you forward to your manufacturer or wholesaler who fulfills the order and ships it to the client.
This model is very helpful as you get to build up your client base, sell items with lower risks, and you don’t need a startup cost or a storage facility.
Do Batch Tracking
Batch tracking uses a batch number to track goods. This helps track where the goods came from, how long before they expire, and who the supplier is.
This allows to track items at a larger scale, streamline the expiry date, and also improves relationships with the supplier.
Provide on Demand
This is a strategic model where you manufacture or order goods only when there is a high demand in the market. Hence, in short, its simply making what is needed and when it’s needed.
This can be significantly beneficial as this system helps minimize costs, reduce storage space, reduces the chances of inventory going obsolete, maintains healthy cash flow, and reduces wastage as well.
Update Your Inventory Managing Software
If you’re still using Excel sheets to keep track of your inventory then you are missing out on a lot of amazing software that may help you optimize your sales and profits.
These tools help you keep track of your supplier as well as the inventory changes. This will also help you access the items that are high in demand and are the best sellers.
This software can significantly help you avoid going out of stock or overstocking on items that aren’t selling well. Moreover, you can give customers more information about their orders and improve the customer experience as well with the help of such tools.
Do Demand Forecasting
You can do demand forecasting to predict what your clients are interested in buying. You can also use this technique to determine what you need. Using demand forecasting for inventory management can help you make better decisions and grow your business.
You can use qualitative analysis to predict future demand.