Warning: You are losing money by not using these 5 inventory management techniques
I used to be afraid to use the word “inventory”. While working as a part-time cashier, the word inventory only meant one thing: many things to tell. It is common for companies, to reconcile their inventory at the end of the year, start counting all the physical products they have, ensuring that there is consistency with what was recorded during the year. For some companies, this requires that all employees reach in and work on it.
You have to understand how important inventory management is, since it is a money marker. You paid also money for those products and you are going to get it back (with some profit) as soon as they are sold.
Why is inventory management important?
Doing a review of your company’s inventory shows you how much money you have on hold. That’s why having good inventory management is crucial for growth. Like cash flow, it can boost or bankrupt your business.
Good inventory management saves you money
Good inventory management saves you money in some important ways:
Avoid product deterioration
If you are selling a product that has an expiration date (such as food or makeup), there is a real possibility that it will work badly if it is not sold on time. Inventory management helps you avoid deterioration and loss of unnecessary products.
Avoid inventory loss
The loss of inventories is something that does not necessarily mean spoiled products. The products may already be out of season or for some reason may no longer be relevant. By managing your inventory better, you can avoid losses.
Save on storage costs
Storing products is often a variable cost, which means that it fluctuates depending on the quantity of products. When you store too many products at the same time or end up with a product that is difficult to move, your storage costs go up. Avoiding this will save you money.
Better inventory management improves cash flow
Not only does good inventory management help you save money, it also allows you to improve cash flow. Remember, you paid cash for these products and you need to sell them. But if your inventory is in storage, it is definitely not generating improvements in the effective flow of your business. If you have doubts, try to pay your supplier with 500 iPhone cases, to see if he accepts it.
This is why it is important to take inventory into account in your cash flow management. It affects both sales (by dictating how much you can sell) and expenses (dictating what you have to buy). Both things determine to a large extent the amount of money you have on hand. Better inventory management leads to better cash flow management.
When you have a solid inventory system, you can know exactly how many products you have, and based on sales, you can project when you’re going to run out of product and always fulfill your orders. This not only ensures you not to lose sales (critical to cash flow), but it also helps you plan ahead of time to purchase more product, ensuring you have money to pay for it.
“Money that is spent on inventory is not considered growth expense. Handle it wisely ”
5 inventory management techniques
Inventory management is a variable part when implementing a business. The optimal system is different for each company. However, every company should strive to eliminate human errors, as much as possible. This means having inventory management and control software.
Regardless of the system you use, the following five inventory management techniques will help you improve the cash flow of your business.
1. Levels of sets at par
A good inventory management technique starts with easily managing the levels together. The minimum amount of products to have on hand. When your inventory falls below this predetermined level, you know it’s time to order more of this product. Typically you will order the minimum quantity, while you get an idea of how fast these products are sold and how long it takes to get it back in inventory. Although it requires a little research and decision making, the content is set to systematize the order process. Not only will it make it easier for you to make decisions quickly, it will allow your staff to make decisions on your behalf.
2. Principle First-In First-Out (FIFO)
The “First-in, First-out” principle is important in the handling of inventories. It means that your older products (First-in) are sold first (first-out), not your new inventory. This is particularly important for products with expiration. It is also a good idea to practice this principle (FIFO) for products that are not perishable. If the same products are kept to the bottom of inventory, they tend to wear out. In addition, the packaging design and characteristics often change over time. You will not want to end up with obsolete products that you will not be able to sell.
3. Relationship management
Part of the success of inventory management is the ability to adapt quickly. If you need to return an item that sells slowly, with the goal of making room for new products, quickly replenishing a bestseller, solving manufacturing problems or temporarily expanding your storage space, it is important to have a good relationship with your suppliers. That way they will be willing to work with you to solve your problems. In particular, having a good relationship with your suppliers of products costs work. If you have minimum quantities in your order, they can be negotiable. Do not be afraid to ask for a lower purchase minimum to have a better inventory management.
4. Contingency planning
There are many problems related to the management of inventories. These problems can paralyze any company that is not ready. For example:
– Your sales increase unexpectedly and you run out of product in stock
– You find a cash flow deficit and you can not pay for the product you desperately need
– Your store does not have enough space to accommodate your peak and seasonal sales
– An error in the calculation of inventory, which may mean that you have less product than you thought
– A slow-moving product that occupies all the storage space
5. Regular audit
In most cases, the reports of your warehouse are entrusted to a specialized software, with the objective of knowing the quantity of existing products. However, it is important to ensure that the numbers thrown by the software coincide in real life.
It’s time to take control of the inventory management of your online store and no longer lose money. Choose the right inventory management technique for your company, and start applying it today.