Maybe it’s just you and one other person, or maybe you have a staff of 100. Regardless, inventory management is critical for the success of your small business. Inventory Management isn’t just about counting items and calculating inventory costs. It also involves choosing an inventory management system that works well with your business philosophy and operating procedures.
Inventory management in small businesses is often based on “buy it, store it, and sell it”. This may work well at first, but unless you plan carefully, you’re bound to fall into some bad habits right as profits start to roll in. But first, let’s start with the basics.
What is Inventory?
The term “inventory” refers to all the goods, merchandise, and materials held by a business to sell on the market to make a profit.
Meaning of inventory:
An asset, tangible or intangible,
An asset that can be realized for revenue generation or has a value for exchange, or
An asset in progress but intended for sale
Managing inventory and stock is a process and set of systems.
This is a part of a much broader concept in supply chain management. For most retail businesses, inventory management is about the following tasks:
The ordering of stock
Storing stock
Selling stock
Tracking stock levels
This might appear simple, but if these are done well, they will establish a solid foundation for expanding and scaling your business.
You’ll be lucky to avoid potential problems and enjoy optimizations such as:
Prevent out-of-stock issues for your most popular products
Underperforming stocks can be moved with the right sales/promotions
To maintain optimal cash flow, keep the right amount of items on hand
Selling perishable goods can help you avoid spoilage
Why Does Your Small Business Need Inventory Management?
The product is the hero of your small business. The main reason customers come to you rather than your competition is because of the products you offer. That’s why it’s so important to understand inventory management. It’s what allows you to keep your shelves stocked with the goods that bring you cash. Businesses of all sizes need to track inventory to help them manage costs and ensure they have enough to supply products to meet customer demand. Effective inventory management allows businesses to save money and improve cash flow. To stay on top of your inventory, you should be organized (no surprise there) and make sure that the data you collect is relevant and correct. To do that, it helps to have accurate information (as well as a little creativity). Without further delay…
1. Organize Product & Vendor Information At A High Level
The product-specific information you should include is:
Product name
Quantity
Your internal product stock-keeping unit (SKU) number
Manufacturer’s Universal Product Code (UPC)/European Article Number (EAN) or other unique identifiers
Short description
Product category, class, or family
Wholesale cost
Regular retail price/MSRP
Your selling price
Colors or sizes
Vendor, supplier, or manufacturer name
Reorder quantities
Shipping details: size, weight, box pack, cost, dispatch time, etc.
Picture or product image
The first step in organizing your inventory is to set up your stock and supplier information in a reliable and accessible system. Some businesses use manual tracking methods such as spreadsheets. And that is a big No-No… Using manual tracking methods like spreadsheets exposes you and your business to mistakes, human error and lack of security of data (to name a few). What happens if your desktop/laptop breaks or your purchase invoices at home get eaten by the dog (we’ve seen it happen)? The best option for small businesses is to use inventory management software that will keep a vendor directory, create and distribute invoices/orders, and integrate finances & expenses, all from one dashboard.
2. Build Strong Relationships With Your Suppliers
Even if you have the best and most organised system in place, problems happen. Like, you have increased demand, a bad batch of raw materials or something missing on your purchase order. There is a lot to be said to be able to pick up the phone in a panic and get sorted quickly when there is an emergency. You can do this in a multitude of ways. But most importantly, pay your invoices on time, and courteously and try to keep loyalty when purchasing. You can go the extra mile by building friendships like remembering their birthday but to be honest, a Christmas card will most likely do as an extra step! You’ll Need To Create & Submit Accurate Purchase Orders POs are financial transactions and essentially document the sale of products to be delivered. They are the easiest way to manage your inventory purchases, letting you track every stock purchase efficiently, from order to cash. You’ll need this information daily so you can forecast your stock needs.
3. Receive Stock Accurately
You want to be sure that you receive your stock accurately. Even though you’re lovely to your suppliers, mistakes can happen. And, if you’re not on top of your game, you will be the one who has been underfed. The easiest way to do this is to check the items received against original purchase orders. Now, if you’re starting, you might think, “let me do this manually”. WRONG. Start as you mean to go on is what we say. Get yourself a business software solution. Learn More Here.
Top Tip: Automate the processing of all your Purchase Invoices.
Track Inventory in Real Time
This is harder than it sounds. Making sure you know exactly what’s in stock, what’s on the shelves, what’s on hold for delivery and in what quantities is something not to be taken for granted. We recommend a POS system to streamline this process. Software such as this tracks your inventory in real-time and adjusts levels simultaneously. In some systems, you can set up reorder alerts, stockout warnings, and automatic PO generation. Learn More Here. A system like this will make tracking inventory levels and reordering your supplies quick & easy, our two favourite words.
And That’s A Very Good Start!
Inventory management is perhaps the most important part of running a business effectively.
Finding the right solution to suit your specific needs, however, might prove a little complicated.
There are more choices than ever before. Hopefully, this guide has helped you understand exactly what is available to you and how best to approach your ideal inventory software.
Does your business have the right management tools in place to ensure its success?
Inventory and integrated business software best practices are a good place to start when you want to optimize management functions in your business.
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