Small business owners know how important it is to use your resources wisely. In retail and manufacturing, the stock you keep on hand makes up a large portion of those resources, whether that’s the inventory you sell to customers or the supplies you need to make products. You have a lot invested in these resources, which means your profit depends on how you manage them. That’s why smart inventory management is essential; getting it right can maximize your returns, while issues from lack of good management can lead to setbacks.
Creating Your Inventory Management System
If you’re a new business, make sure you set up a good inventory management system from the start. Even established businesses can benefit from reevaluating their procedures because you may be able to simplify your life and reduce costly mistakes.
How do these mistakes happen? These issues generally come down to lack of organization or insufficient procedures (or worse yet, failure of employees following procedures). One of the first ways to address these issues is to keep your warehouse organized. Part of this solution comes from simple storage tips such as placing items in strategic locations and keeping your warehouse free of clutter. Having an organized warehouse also comes from using an effective system for labeling and tracking inventory. For example, using warehouse bar code labels makes the process of receiving inventory much faster, and most importantly, it increases accuracy in each step of the process, from stocking to shipping out orders.
Finding Your Optimal Inventory Levels
Besides increasing efficiency and accuracy, having a good system for managing inventory also helps you run a more profitable business. If you end up with an oversupply, you’re losing money by having a warehouse full of dead inventory, as opposed to putting that money into products that are profitable. At the same time, you don’t want to have an undersupply of items that move and miss out on potential sales. Finding this perfect balance comes down to determining the best quantity and timing for reorders. These are just a few ways that your inventory management system can help with making those decisions:
Documentation of Stock Levels: According to the blog Business 2 Community, keeping documentation of inventory is the primary way you can stay on top of everything you need to know, from when an item is low to tracking refunds and damaged items. Having documentation also makes it easier to get things sorted out if you do run into a problem.
Evaluate Trends: In addition to keeping up with what’s going out and coming in on a daily basis, the main benefit of having documentation of your inventory is that it allows you to evaluate trends and make sales forecasts. If you’re using a digital solution, it’s easy to run reports that show which items sell fastest and whether certain items have dropped in popularity.
A smart strategy for most small businesses is to identify your target customer along with the best products to serve their needs. Business success depends in large part on filling a need, which is why you want to prioritize stocking the products that best fit that demand. Doing this will help you boost sales and it also ensures you don’t overstock items that are less profitable.
Create a Reorder Plan: When you know which products are most important to keep in stock, you need a plan for making sure you don’t run too low. One strategy is to determine a minimum stock level, which is the point at which you know it’s time to reorder. When determining this level, don’t forget about other factors, including how much space you have for storage and how long it takes for suppliers to deliver an order.
Whether you’re a new business or you’re just reevaluating, figuring out these processes takes time. This is one reason why some businesses hesitate to shake things up and make a change. And while that’s completely understandable, you’re only holding yourself back in the long run by continuing with old ways that simply aren’t working.