Chances are, if your business is product-based, you rely heavily on your inventory to make sales. That’s why as much as possible you must account for every piece of inventory that comes in and out. Since you’ve tied up a lot of money in your inventory, it’s necessary that you sell your products to get your money back and earn a profit along the way.
Once you lose control over your inventory, you’ll be faced with a lot of inconsistencies and cash flow problems. Eventually, you’ll have no choice but to revisit the idea of applying for inventory financing for your business.
Having an adequate inventory is important as it allows you to meet the demands of your customers. Otherwise, you’ll miss out on a lot of opportunities to make sales and generate revenue. However, it’s also not advisable to order in excess. Being stuck with products you can’t sell will only lead to your business losing money.
That is why every business needs to have a proper inventory management system in place. For growing companies, this is vital.
What is Inventory Management?
Inventory management is an important aspect of the business because it lets an owner keep track of their goods. It tells you when you should replenish your stocks or track whether the actual inventory matches your books. If it’s not handled properly, your business could end up losing money, or worse, shut down.
When done right, inventory management can help you establish an efficient system where you can track the movement of your stocks. It also allows business owners to order the right number of products so there won’t be a shortage or excess. You then can keep your stocks under control so you can in turn run operate your businesses without problems.
6 Effective Inventory Management Tips
While inventory management isn’t everyone’s cup of tea, it is a necessity for the success of your business. To help make it easier for you, here are some inventory management tips you can follow:
Use the Min-Max Method
The Min-Max method stands for the minimum and maximum inventory levels you should maintain. It’s one of the most effective methods since it allows business owners to determine the right amount of inventory they should have. Entrepreneurs also find this method easy and straightforward.
To apply it, you should assess your inventory needs. After that, draw two lines to represent the minimum and the maximum inventory you should have. When the level of your inventory reaches the minimum line, it’s the perfect sign that tells you it’s time to restock and reorder the items. But be warned, this method can also lead to inadequacies and excess stock if not used carefully.
Maintain the First-In-First-Out Principle
First-in-first-out (FIFO) practice in inventory management is vital for every product-based business. This means the first products that arrived should be the first ones you dispose of or sell. This principle helps business owners get rid of products that have specific expiry dates. By getting rid of the older stock, they can sell the product before it’s spoiled and unsalable.
But even if your products are non-perishable, it’s still important to practice the First-in-First-out method. A lot of products are packed and overtime, the product packaging changes and becomes obsolete. As a result, you’ll end up selling spoiled products which can affect your store’s reputation negatively.
The ABC Method
If the Min-Max Method is the easiest, the ABC method of inventory management is the most commonly used. In implementing the ABC method, the inventories are grouped into 3 – namely, A, B, and C. The products are classified according to the demand.
For instance, the products in category A represent the group that needs the most attention because their sales can change from time to time. Category C, on the other hand, doesn’t need much attention because they have a lesser impact on your sales and have a high turn-over rate. Category B represents the products in-between categories A and C.
Forecast Your Sales
One of the most important things in managing your inventory is having an idea of your sales forecast. Your sales projection should be accurate so you can track your future sales projections. Look at your current sales and compare it with the previous year. Be sure to consider the seasonality of the products, as well. Through the data you gather, you can determine how much inventory you need, ensuring you won’t run short.
Make Use of an Inventory Tracking Software
Traditional business owners may have been used to the traditional way of tracking their inventories. But as technology continues to advance, a lot of software has been created to help make inventory management easier and more efficient. Businesses need to adapt to these strategies in order to not be left behind.
Automated inventory tracking allows you to manage your inventory in real-time. With the use of computer software, you can easily determine what your inventory levels and sales performance numbers are. In short, it will be easier for you to track the movements of the products going in and out of your company.
Consider Inventory Financing for Your Business
A proper inventory management system is the key to a successful business. If you own a product-based company, you should always make sure your inventories are in line with what’s recorded in the books. Be as thorough as you can. If you need inventory financing for your business, then apply for it beforehand. It’s always better to be prepared for any and all challenges that can unexpectedly show up in the future.