A staggering 46 percent of all SMBs either do not track inventory or use manual methods to do so. It’s a startling statistic, given that a company’s inventory is among its most valuable assets.
Inventory consists of the products a company has available for sale. For manufacturers, inventory refers to the materials the company uses to manufacture products.
Whether you’re a retailer or a manufacturer, it’s essential that you have the right amount of inventory at any given time. That’s why you need to be tracking inventory at all times.
In this comprehensive guide, we tell you all you need to know about proper inventory management. Read on to learn more.
What Is Inventory Management?
Inventory management refers to the practice of tracking the goods you have in stock. The practice includes such tasks as inventory ordering, storing, restocking, and forecasting.
Managing inventory becomes more challenging as the number and type of products you sell increases. Thankfully, there are reliable inventory systems that companies can integrate into their supply chain management.
Why Tracking Inventory Matters
Before we take a look at inventory best practices, it helps to know why businesses should go through the trouble of managing inventory in the first place. Here are a few benefits of proper inventory management.
It Helps You Save on Storage Expenses
Failure to track inventory can result in excess inventory, which means you have to find extra space to store inventory. You may have to rent storage space, and that means spending more money. Proper inventory management enables you to keep inventory from exceeding the levels that you can comfortably store onsite.
You Get to Avoid Stockouts
Stockouts are the opposite of having excess inventory. It means that you’ve run out of inventory for a certain item. As a result, you cannot fulfill an order or continue production.
Inventory tracking systems help avert this by calculating the proper amount of units required in stock at all times. This way, your stock will never dip too low and make you miss sales or disappoint your customers.
It Enables Inventory Forecasting
Inventory tracking can help you forecast what’s likely to happen in the future. By monitoring your inventory levels and output flow regularly, you can plan for demand and keep up with your sales.
You Can Plan Better for the Unexpected
In business, it’s impossible to know for sure what will happen in the future. However, you can prepare for that future through proper inventory management. Some unexpected supply chain problems you can plan for through inventory management include:
- Running out of space to store inventory
- Delayed deliveries by the manufacturer
- Cash flow issues
- Unexpected stockouts
As you analyze your inventory over time, it becomes easier to develop a contingency plan for unforeseen problems. This way, you can make sure that such issues don’t deal your business a huge blow when they do occur.
Strategies for Inventory Tracking
Inventory management affects all aspects of your company’s operations. Deploying the right inventory management practices can thus improve your business significantly. Here are a few expert tips to get you started.
1. Audit Your Inventory Regularly
Auditing physical inventory seems time-consuming, and it can be. However, it’s an essential aspect of tracking inventory. It entails counting your actual warehouse inventory to make sure the results match what you’ve listed in the inventory management software you’re using.
If you work with a third-party logistics (3PL) company, they should conduct inventory counts regularly. Ensure you use a barcode scanner to keep track of stock-keeping units (SKUs). Compare the information provided by your 3PL provider against the information you have in your inventory system.
Before signing a service level agreement (SLA), go through it to see how frequently your 3PL provider is expected to check inventory. Look at the allowable discrepancy stated in the agreement too.
2. Establish Reorder Points
Reorder points refer to the minimum quantity each of your products needs to be to avert stockouts. Once your inventory drops below your set reorder point, you need to replenish it.
Setting reorder points requires some work on the front end. However, it’s worth the time and the effort as it prevents you from the numerous after-effect issues of running out of inventory.
3. Maintain Open Communication With Suppliers
One of the most important steps when setting up a business is to find the ideal suppliers for you. Once you’ve identified the right suppliers, go out of your way to build and nurture a great relationship with them. Doing so helps significantly with your inventory tracking efforts, rather than hindering them.
Communicate effectively and frequently with your suppliers. Alert them of potential rises in sales or promotions. This way, they’ll find ways to keep up with increases in your customer demand, and you’ll always have enough products in your stock.
4. Invest in Inventory Management Software
There was a time when businesses had to use manual techniques to gain insights into their inventory. As we hinted earlier, many small businesses are still stuck on these practices, which can be both time-consuming and inaccurate.
Today, there’s a variety of inventory tracking software that businesses can use to handle their inventory management. The ideal inventory software provides accurate metrics in real-time. You also get comprehensive reports and timely updates on your inventory.
With a reliable inventory management system, you’re always aware of what steps you need to take when, including:
- Moving unsold products
- Meeting sudden, unexpected demands in sales
- Performing recalculations of your inventory after making mistakes
Your inventory software helps you stay on top of accurate inventory reporting, which is essential to effective inventory management. Certain types of inventory software even help you optimize where you should warehouse your stick to reduce shipping costs.
Get It Right When It Comes to Inventory Management
In today’s fast-paced and hyper-competitive marketplace, it’s easy to lose track of your inventory. But running a business without tracking inventory is a sure recipe for disaster. Inventory management is essential to analyzing sales patterns, predicting future sales, preparing for the unexpected, and keeping your business profitable.
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