Inventory mostly associated with retail or manufacturing business & industry.
Inventory is the most important asset of a company as keeping a huge stock as well as a minimum both can be damaging for a business.
To maintain an average quantity of inventory, retail businesses offer discounts, cashback etc. It’s a tactful way to sell out old stocks.
What are the issues a business faces in managing inventory?
Jonathan runs a successful scientific instrument distribution company and his business deals with a large number of distributors and suppliers. As a distribution company, he always has to maintain a sufficient amount of stock. He faced major issues in his business due to poor inventory management. Here are some issues he faced:
- How to monitor sales velocity & inventory
- How to track items in real-time
- How to manage tedious purchase orders
Learn how he solved his issues in this video:
Why a business needs Inventory management?
Inventory is the most important part which keeps a business going. It helps to serve the customer quickly & in a better way.
Why a business should not only hold an inventory but should manage it efficiently?
- Helps in saving time: A proper or good inventory management helps a business to save a lot of time in searching for particular or specific items and raw materials. If you arrange or place items in a particular order then it will be easier for you to find out a product whenever a customer asks. For example, A customer came to buy a medicine which usually not get sold and you start searching for it as you forget where you kept it. If you have arranged items according to their name or type etc. then you may find it quickly to provide a quicker service.
- Cost control: Overstock is a result of poor inventory management and it can cause a business to face a huge loss. If a business maintains a proper inventory then it would be easier for them to know which products should be ordered of how much amount at which time. For example, in festive seasons people usually shop more than other normal days, so retail shops keep all fashionable items in their inventory to fulfill customer demand and to sell more items. But if they keep their stock always full then they might face losses due decrease in selling. A proper inventory management helps a business to save money.
- Prevent wastage: The business which deals with inventory like retails shops, medicine stores, whole sellers etc. sometimes they lose a huge amount of money on expiry or damaged items. And the only reason for this would be not selling products before expiry period or within 2-3 months after it came to inventory. The best way to avoid this kind of loss is by following the rule FIFO(First In First Out). But this rule can be not applied to all industries. A business which maintains a proper inventory can perfectly work on this rule as they know which item needs to get out of the inventory prior to other items.
- In-time delivery:
Managing inventory is different for different type of business. Inventory control managers always strive to adopt new techniques to decrease the various costs involved or associated with inventory like manufacturing cost, raw material purchase cost, inventory holding cost, operational cost, labor cost etc.
Now how to manage inventory in order to save hard earned money for your business?
Here are some key factors that help in a better inventory management to maintain the profitability of a business:
- Hire the best manager: Find out a person which has experience in managing inventory and is very much responsible as well as smart enough. Hiring an experienced and best inventory manager helps a business to manage inventory, get stock reports on time. ensure in-time item delivery etc. A stock or inventory manager manages stock by applying new strategies to save the cost of the business. Hiring an experienced & responsible manager could be a great advantage for business deals with inventory
- Specify the average stock level: It would be easier to manage inventory by setting out the minimum stock order level that should be kept in a whole year. This can be done by doing a proper analysis of customer demand and seasonal demand. Specifying the reorder level helps a business in managing the raw material procurement channel as well as the process. As a startup, it would not be easier for you to find out the minimum stock level but as the business keeps going it can be done. In the case of the retail industry, this level keeps changing as per the new trend, customer demand, season, market changes etc. But this one is a great trick to save money for your business.
- Organising stock flow: Stock flow can be defined as item movement from the inventory. There are some rules which can be followed to organize stock flow and those are FIFO, LIFO etc. But these are limited to some industry. Medicine shops may go with FIFO as medicine must be sell before its expire period. Organising stock flow maintains a balance between overstock & low stock.
- Prioritise items: This strategy also falls under stock organization but the only difference lies here is the priority. The items with a high price but less demand should be kept less in inventory as it will consume a lot of business cash also holding it for a longer period would not be beneficial. However, items with less price but high demand or frequent sale can be kept in more quantity as it will not hamper the business cash. At the same time, a business has to focus which item giving more profit and should try to sell that item in more number. It can be done by doing a proper demand & sale analysis. It will help to organize the stock flow in a better way to gain more profit.
- Real-time inventory tracking: Tracking of inventory is another way of saving money. This can’t be done manually. A business needs to use inventory management software to keep a real-time track of inventory. It mostly applicable in case of a retail shop. using a software helps to get a quick report of frequently sold items, item procurement, procurement quantity etc. This helps to satisfy customers and in providing quicker service.
- Purchase order management: A purchase order is raised by the buyer to a seller specifying items, its quantity, and price. To fulfill a purchase order the business needs to have required items in stock. Using a software would be the best possible way to manage purchase orders. After receiving a purchase order the business has to do deliver that order in-time to maintain a good relationship with the buyer and to maintain business reputation. If you are not using a software then nearly impossible to remember the delivery date as a business usually receives a number of purchase orders. Start using an inventory management software and save your business money.
- Prepare for Uncertain issues: A business you should be always ready to face uncertain issues and this is very normal. The most probable issues a business may face in inventory are; running os cash and unable to procure the required stock, unexpected sales growth lead to dried stock, having less space in the warehouse to keep items etc. Do risk assessment and be ready with a strategy to face this kind of issues in your business.
- start using a software: Using the best inventory management software would be of great help as it will save more time, provide a stock report, track item status in real-time, manage purchase orders etc. As AI technology is booming to help businesses in running their business smoothly and operate easily. I would like to recommend the best inventory management software i.e SlickAccount. It will help to manage the warehouse, order management, item organize etc.