Inventory management is the practice of optimizing your inventory space. It involves utilizing your space efficiently, ideally carrying only items that sell. It also entails implementing an effective system to reduce errors and streamline your process of shipping and receiving stock.
Similarly, inventory management involves tracking stock from the point of purchase or creation through its sale. It gives you a clear picture of how much inventory you have and how much more you need. It also includes processes like auditing stock levels, setting par levels, and ordering or reordering goods and raw materials.
Ultimately, implementing and mastering inventory management can lower your spending, improve your operational processes, and increase your cash flow.
Why is Inventory Management Important?
Inventory management has a lot of benefits for businesses.
First, it reduces the chances of you running out of valuable products. This means you can maximize your profit by ensuring that your top-selling items are always in stock for your customers.
Implementing inventory management also enables you to optimize your warehouse space by limiting unnecessary inventory. For instance, when a product is not selling well, you can reduce the inventory count moving forward. This enables you to open up space for fast-selling items, reduce spending on rent, and avoid purchasing unneeded space.
In addition, effective Inventory management helps you maintain a healthy cash flow by ensuring you readily carry products that are in high demand to your customers. Similarly, it allows you to buy raw materials or products in bulk, driving lower costs and higher profits.
5 Ways to Improve Your Business Inventory Management
Every business is different, which means there are various structures and needs at play. But here are some universal best practices to help you improve and maintain your inventory management system.
1. Invest in a Quality Inventory Management System
One of the best (not to mention easiest) ways for you to manage your inventory is by using software that tracks real-time product availability and generates orders for top-selling goods.
This can be beneficial in preventing losses from unsold or slow-selling items. Also, a good inventory management tool can report real-time inventory levels and business trends as well as provide recommendations for distributing your inventory.
2. Monitor Supplier Performance
While suppliers can be big contributors to your business, they can also pose risks to your business. This includes risks of delivery failures, environmental problems, product and material defects, and safety concerns, among others. Your business can minimize exposure to these risks by monitoring supplier performance.
Keep in constant communication with your suppliers to reduce the risks of potential issues. This helps both parties to readily deal with problems while focusing on solutions. In the event of serious supplier issues, it also allows you to handle the need to change them, should there be instances of unsettled inventory levels or insufficient stocks of certain goods.
3. Create and Implement an Accurate Forecasting Model
Regardless of what products you hold or the industry you operate in, establishing a forecasting model is critical to your inventory management. This helps you better prepare for the demands you must cater to. It also helps predict the profitability of your business and make informed decisions in terms of budgets, planning, and risk management.
Forecasting entails plotting timelines and planning your stocks accordingly. Some key questions to consider include:
- How long is the season? When will the expected peaks and lows be?
- How long will it take us to replenish stocks?
- Do we need to get a larger load of stocks? Or do we pace the replenishment of goods?
When developing a forecasting model, consider the seasonality of a product. For example, you can implement the ABC structure — Category A for highly valuable and profitable goods; Category B for the middle group; Category C for the goods with the lowest consumption and value.
4. Track and Analyze All Inventory Data
Keep a close eye on your inventory levels to ensure that you have enough stock to meet customer demands. Particularly for seasonal or time-bound products, you’ll want to ensure that you have enough on hand to cater to customers, but not too much that you’ll have leftovers at the end of the season.
Monitor and analyze your daily sales and inventory levels. Look out for sudden peaks and dips. These can potentially be indicators of profitable products to continue selling and items to reduce orders of. Understanding sales levels and trends also allows you to gauge minimum inventory levels and avoid overstocking.
Manual tracking and analysis of data can be tedious. A robust POS system takes away the guesswork by keeping critical information about your business metrics. It automatically logs sales as they happen and updates inventory records in real time. This enables you to easily view what’s selling and what’s not, compare product performance, understand insights, and optimize your operations.
5. Conduct Regular Audits of Your Inventory
Inventory levels can be impacted by several factors — from the inaccurate process of receiving stock to damage and theft. Regularly auditing your inventory records will enable you to manage your goods better for maximum efficiency. It helps you find errors and inventory management issues. Plus, checking and reconciling your stock levels gives you more confidence in your inventory management practices.
Similarly, schedule proper warehouse housekeeping to improve your inventory management. Having an orderly and tidy warehouse potentially reduces instances of costly mistakes, slow shipment timelines, and other human or system errors.
Organize designated areas for specific processes. Color-code or tape off areas for certain products. Conduct regular cleaning to ensure your warehouse and products are well-maintained.
With these inventory management best practices, you’ll get a better handle on your cash flow while ensuring a sufficient supply of products to fulfill customer orders. A well-managed inventory allows you to reduce costs, provide customer satisfaction, improve operations, and run a successful business.
True POS is a high-performing tool that can help streamline your processes and improve your inventory management. It closely monitors your products and tracks what comes in and out of your business, thus turning data into actionable insights that help you make informed decisions. It also provides robust reporting and allows integration with third-party reporting software.
Want to learn more? Contact True POS today or request a free quote.
