Inventory management starts with a defined process, but inventory management software tools can help you too. This guide will help you improve your inventory management. Inventory management involves the ordering, storage, and use of a company’s materials or products. There are different types of inventory, such as commodities, cyclical inventory, and MRO goods. Prioritizing your inventory helps you understand what you need to order or produce most frequently so that you can continually meet the needs of your customers.
Steps for Inventory Management
Inventory management is a critical part of a business’ profitability, but many small businesses do not practice good stewardship of the items they sell. Some companies have insufficient inventory and are unable to meet customer expectations by providing enough available products. It often drives customers away, sometimes to another business, sometimes forever. Here you will find 6 essential tips to effectively manage your inventory for increased profitability and stock management.
1. Prioritize your inventory
Categorizing your inventory into priority groups can help you understand which items you need to order more often and more frequently, and which are important to your business but can cost more and move more slowly. Experts usually suggest separating your inventory into groups A, B, and C. Group A items are more expensive items that you need less. Category C items are low-cost items that are delivered quickly. Group B is what sits in between moderately priced items that move slower than C items but faster than A items.
2. Track all product information
Be sure to follow the product information for the items in your inventory. This information should include SKUs, barcode data and vendors, countries of origin, and lot numbers. You can also invest in inventory tracking software and track the cost of each product over time to understand what factors, such as scarcity and seasonality, can influence or affect the cost.
3. Check your inventory
Some companies do full invoicing once a year. Others run monthly, weekly, or even daily random checks of their most interesting articles. Many do all of the above. No matter how often you do this, it’s important to physically count your inventory regularly to make sure it’s what you think you have.
4. Analyze supplier performance
An unreliable supplier can cause problems with your inventory. If you have a supplier who regularly lags on deliveries or often bypasses an order, now is the time to act. Discuss issues with your supplier and find out what needs to be prepared for changing partners or dealing with uncertain stock levels and the possibility of stockouts as a result.
5. Practice the 80/20 inventory rule
Typically, 80% of your profits come from 20% of your stocks. Prioritize inventory management of this 20% of items. You need to understand the full sales lifecycle of these items, including how many you sell in a week or month, and monitor them closely. These are the items that make you the most money; do not fail to manage them.
6. Track sales
Again, this may appear obvious, but it extends beyond simply totaling sales at the end of the day. You must understand what items you have sold and how many you have sold on a daily basis, as well as update your inventory totals. However, you will need to analyze this data, which you can make easier by investing in sales tracking software, which logs sales activities and provides management with useful and relevant sales-related information. Do you know when certain items sell out faster or are discontinued? Is it seasonal? Is there a specific day of the week that you sell certain items? Are some items almost always sold together? To keep an eye on your inventory, it’s important to understand not only the sales totals but also the big picture of how items are sold. Cost Segregation Services is an Engineered Tax Services provides a Detailed Engineering review as part of our reporting process and works seamlessly with the IRS and your CPA firm for minimal disruption to your business.
7. Order supplies yourself
Some vendors offer to rearrange inventory for you. At first glance, this seems like a good thing – you save staff and time by letting someone else handle the process for at least some of your products. But remember that your suppliers do not have the same priorities as you. Try to move their items, while you try to store the most profitable items for your business. Take the time to check inventory yourself and order supplies for all of your items. Following these steps will lead for better stock management and smoother business functioning.