Running a business is all about knowing how much of what product you have in stock. Without inventory management, your entire supply chain falls to pieces. You might have one of the best products to sell and the best marketing around, but the second that you start to consistently over or understock an item, you consumers stop buying. The longer your lead time, the slower the process and the less likely consumers are to return.
Inventory management is one of the most important aspects for properly running companies and without it, your sales will plummet. You can optimize your supply chain with inventory management just as easily as you can plunge a company into debt without one. Inventory management give you the information you need to know so that your supply chain can success and your businesses can flourish.
What is Inventory Management?
Inventory management is the process of tracking all items that go in and out of your warehouse. This allows companies to hold an accurate number of the stock they currently have available and to properly estimate when the right time is to order a new shipment of stock. By managing your inventory levels, your business can keep the perfect amount of stock on hand that warehouse management costs are low without running the risk of running out of your product.
The inventory management step in the supply chain is one of the most important for running a retail business. When you properly manage your inventory, you can find that perfect sweet spot in stock holding that allows shipments to go out right on time, every time. Managing inventory can be difficult for companies and often requires a dedicated software accessible via email address. This inventory management software helps eliminate human error and cuts down on lead time.
How Does Tracking Inventory Benefit the Business?
No matter the size of your company, there are plenty of reasons as to why you should keep track of your inventory. Many small businesses utilize inventory management so that they can keep up with the demands of customers and avoid falling behind in order fulfillment. Whether you’re simply looking to stay on top of warehouse management or to eliminate lead time, supply chain management and inventory stock knowledge are two things that every business should be aware of.
Properly Track Order Quantity
One of the best practices for companies when it comes to inventory management is to analyze the data they have so that they don’t fall behind on orders. A common inventory management practice that businesses use is demand forecasting which is the practice of noting trends and demands made by consumers and ordering stock based on that.
This allows you to note how much stock you’ll need to meet the demand, and even enables you to order safety stock incase you have a resounding day and run out of what you ordered before the next shipment comes in. When you properly track and manage inventory, you can avoid hold ups, cut down on lead time, and boost customer satisfaction all from one email address.
All Businesses Need a Proper Inventory Management System
Without a proper system in place, you could very quickly fall behind on order fulfillment. You run the risk of overstocking certain items that might expire in the warehouse, while understocking items that are in demand right now. Without a dedicated software or system in place a company’ s inventory is subject to a poor management practice.
Organize your files with any of the best inventory management systems available today. Learn what you need to know from your inventory to find success and make a profit without ruining your supply and over buying stock items. Cut down on lead time and decrease your days of inventory outstanding (DIO). A proper inventory management software will help you optimize your business like never before.
Finding the Right Inventory Management Software For You
There are hundreds of programs available online that you can choose from to manage your inventory, but some will be more suited for you than others. Here are the important features to consider when searching for the perfect inventory management program.
Perfect For Your Business
The size of your inventory will have a direct impact on the program that you should consider. Some inventory managers are built for fortune 500 companies while others are suited for a one-product dropshipping store. Find a software that works specifically for the size of your businesses.
Customizable and Dependable
Along the lines of the point stated above, you need to consider you when shopping for an inventory manager program. You should be able to customize the outputs you’re looking for in order to receive the information you need to be successful. If you’re getting a barebones, same for everyone program that doesn’t tell you anything useful, why go with that program?
Easy to Use
Simplicity is key when it comes to inventory management. You want to keep the technicalities low so that you don’t continuously run into problems before you can even start managing your inventory. With a user friendly software, this issue should be a thing of the past so that you can start shipping out your stock with ease. Keep the process simple and you’ll find manageing your inventory to be easier than you might expect!
The Best Inventory Management Techniques
From Economic Order Quantity (EOQ) to safety stock and understanding the point of sale, there are hundreds of different ways to manage inventory. Some practices are more suited for certain industries and might not be beneficial for another. Inventory management systems can be tricky, but by understanding what each one offers, you’ll be well prepared to find the one that works for your business.
This technique is when the inventory management systems place the items into three different categories based on profit margins. Section A contains the most profitable times in your company’s inventory. These items attribute to a majority of the profit your business receives. Section B is the middle ground in terms of profitable products. These products aren’t as profitable as A but contribute more than C. Section C is for the products that attribute much to the overall profit but aren’t too important on an individual scale.
This inventory system groups stock together based on selected patterns and trends. You can trace the time in which each part of this grouping takes to expire, or you can see where any defections are coming from. This method of inventory management is pivotal for keeping track of the shelf life of a certain stock.
This inventory management system is the process of shipping many items at once. You can drastically cut down on shipping costs by shipping stock items all at one time. One big shipment cost significantly less than many small orders.
This is best seen in consignment stores. Essentially, the developer of a product agrees to give a certain amount of inventory to a store for free. The store doesn’t pay the producer for the products until a sale occurs at which point the store pays the producer of the products. In the end, the store sells the products for slightly more than what the wholesale value was.
When a truck arrives at a warehouse with stock, more often than not, they’ll leave it at the warehouse until a company needs to fulfill an order. Sometimes, the truck will load it onto another truck that’s departing that same day to deliver the goods directly to the business or customers. This is called cross-docking and it’s a fantastic method of inventory control that cuts down on storage times and inventory costs.
This is an estimation of how much product a store believes will be sold in the coming period. They take in information about trends and interests from previous customers and order their inventory items based on that. Many retailers utilize demand forecasting to find the perfect amount of stock that should be kept at any time. This is one of the most common forms of inventory management.
Dropshippers don’t hold any inventory themselves. Once customers purchase items from their store, they go through the process of order fulfillment with the third party supplier who sends the finished goods directly to the customers. There is never any physical inventory for the dropshipper, and therefore no carrying costs. They only need to worry about the cost of goods and how much they should mark up the prices based on what the third party supplier is charging.
This is a common example of business to business marketing.
Economic Order Quantity (EOQ)
If you’re trying to find the perfect stock levels you need to stay balanced and secure, then this is the inventory management process you’ll love. EOQ is a formula that considers things like carrying costs, consumer demand, and cost for raw materials to provide the company with the ideal number of stock they need to carry at one time.
This helps you avoid dead stock and optimizes inventory tracking. The goal of EOQ is to minimize costs while optimizing sales. You don’t want to overstock items and find your company deep in debt, but you also don’t want to understock. EOQ helps a business find that balance.
FIFO and LIFO
These are opposing inventory management techniques, but they are both successful depending on the industry you’re working in. FIFO – First in, first out – is the practice of selling the goods that have been in the table of contents for the longest period of time. This gets rid of older stock so that your inventory is fresher. This can lead to you selling lower-quality products.
LIFO – Last in, first out – is the complete opposite. This inventory management technique gets rid of the newer items first so that you can ensure that the goods you’re selling are high quality. This can lead to your inventory suffering from dead-stock that goes bad.
Just-in-Time (JIT) Inventory Management
Once you’ve determined when you’ll need more inventory produced, you can order your raw materials to be sent to production just before their needed. This inventory management processes allow you to hold less inventory and cut down on carrying costs.
By ordering the goods just before they’re needed, you spend less on the stock that isn’t going to sell and you don’t have to worry as much about warehouse management. The issue that comes with this inventory management technique is that you must know how to place at the right time. If you order too late, you run the risk of getting behind on deliveries. Too early, and you have tock to keep track of.
The leaner the meat, the less extra fat there is to clog up your diet. The same can be said with this common inventory management practice. Lean manufacturing cuts out any waste or activities that don’t add value to the products or the company. With lean manufacturing, you’re paying less for stock and you have less to store. On top of that, your waste levels drop significantly.
Perpetual Inventory Management
This form of inventory management is one of the simplest available. You’re essentially counting your inventory products as they arrive. This way, you know exactly how many items you have in real-time, without having to make estimations. This process can be done without inventory management software, but you might encounter human-error, especially if you’re holding thousands of times in stock.
Reorder Point Formula
The reorder point will vary from company to company and is based on your personal stock. To calculate the reorder point, an inventory management system takes into account the order quantity of the past, how much stock is currently available, and assesses item trends. This allows you to hold the right amount of stock for your company based on previous trends.
Safety Stock Inventory
Sometimes it’s beneficial to buffer stock supply so that you don’t run out of items. You can have all of the data collected and a balance sheet that lets you know exactly how much you should expect to sell this month. However, people aren’t clockwork and unexpected trends can occur. You’ll never know how much you’re going to sell each week, so one of the best practices to avoid running out of products is through safety stock inventory. This is where you purchase more products than you expect will be demanded, just to be safe.
How to Measure For Effective Inventory Management
This information is decently accessible if you know what to look for. There are a few questions that you need to ask yourself after implementing inventory management in order to determine whether or not it’s been implemented effectively. Firstly, how often are you running out of inventory? If the number is drastically less than what it was before you started tracking your inventory, then chances are you’ve successfully implemented inventory management.
Another question to ask yourself is how much of your stock is expiring before it can be sold? Many companies who overstock find themselves with plenty of dead stock that has gone bad in the warehouse due to them over ordering inventory. With inventory management, these numbers should drastically decrease for you.
Holidays Place a Load on Inventory Levels
If there’s a holiday season coming up, make sure that your inventory is properly prepared. Times where consumers are typically more active throughout the year are perfect times for companies to consider safety stock. When you know that your inventory is likely to be ordered quickly and often due to days like black Friday or Cyber Monday, then preparing your inventory via safety stock will get you through the holidays, and boost your sales like never before.
A quality program can take these special days into consideration when stocking the inventory. When you properly for high-traffic days, you’re better able to the supply chain running and the inventory flowing.
Conclusion: Manage Your Inventory!
Companies who do not manage their inventory are destined to fail. If they don’t fail, then at the very least they don’t stand a chance at scaling to new heights. If you’re looking to build your business and keep a solid stock of inventory at all times so that you can cut down on over or understocking, then inventory management is a must.
It can be overwhelming at first, but once you get the hang of it, your business will be more successful than ever before. Track your inventory and properly manage it so that your business can thrive and you can reach the heights your company is striving for.