8 Steps to become more efficient in Inventory Management

Tejas Goenka | Insights Success

Managing inventory is one of the key challenges for any small business today. Ensuring that the right stock is available at the right place at the right time, is a key task, as it has major implications on the overall revenues and profitability of a business. One way, most businesses this, is to maintain stock as per the last observed demand, but then there is the risk of customers not finding what they need, leading to lost sales and most importantly lost customers. Another approach is always to have enough stock, and while that may ensure availability of the desired stock, the cost of excess inventory adversely affects cash flow, finally impacting profits. Cracking this thus becomes of extreme importance for business efficiency.

Thus, the key to effective inventory management lies between these two approaches. Here’s sharing 8 tips and tricks which could help you become more efficient in Inventory Management.

  •  Categorizing your inventory into slow-moving and fast-moving helps you to plan better always. Conventionally businesses use the ABC method, wherein high-ticket and slow-moving items are grouped under A, and low-ticket fast-moving items are grouped under C. Category B will then have those items which are moderately priced and move slower than C but quicker than A. Another important aspect to consider here is that inventory loses value over time, so if some stock is not moving at all, one may consider offering discounts to clear the same and free-up blocked cash.
  •  Having a clarity on overall costs gives one the knowledge of what an item actually costs and how much it can actually be sold for. This involves evaluating all costs – cost per unit, cost of moving, cost of storing, restocking cost, freight cost etc. This will help you to manage your profit margins, especially in phases when you need to offer a seasonal discount, or when you need to protect yourself against rising costs.
  •  Maintaining and tracking a complete record of all the products which form part of your inventory is a must at all points in time. This should ideally include info about SKUs, barcodes, suppliers, batches, lot numbers etc. Also, it is not just about knowing the inventory but also about knowing – is the inventory movable, is there enough space to store the inventory, how long is the space available for storage and most importantly, how much of human intervention is required for maintaining it. Having a grip on all this, will enable you to take the right decisions with regards to inventory purchases and inventory flow.
  •  Counting your inventory or stock check is an important task. Depending on the nature of your business, you may want to do a count yearly, monthly, weekly or even daily – especially for your category C items which move the fastest. Irrespective of the method adopted for counting, it is essential to audit your inventory to ensure that it matches the inventory data in your books.
  • Suppliers can either make or break your inventory management process. If you have a supplier who is habitually late with deliveries or frequently short supplies an order, then it is going to impact the inventory flow right up to your end user. It is essential to work with suppliers who guarantee an optimum stock level, enabling supplier refuses to adopt the best practices, then you should evaluate other suppliers who can match your pace.
  •  80% of your profits come from 20% of your stock. Thus, it goes without saying that inventory management of these items are a clear priority. This requires understanding the sales life-cycle of these items and closely monitoring them. Thus, your procurement plan will always ensure that you never fall short of these products which contribute the most toward your revenues and profitability. Similarly, your product storage plan will ensure that your most popular stocks are always placed at the most accessible part of your warehouse.
  •  As a business, you may be tracking sales for sure, but the activity is more than just counting how many items were sold and for how much. There is a need to analyse this data as well – which item sold faster, which items didn’t get sold at all, was there a seasonal rush, are there days in the week where sales are more, do some items always get sold together, did an annual festival or a company’s promotion affect sales etc. Analysing all this, will help you to understand demand better and to forecast efficiently.
  •  Last but not the least, getting rid of manual systems of maintaining inventory is the need of the hour. Most small businesses still manage their inventory on paper or spreadsheets. However, as the business grows, it becomes next to impossible to continue using manual methods or spreadsheets, since a business owner will end up spending more time managing inventory rather than focus on the overall business. Inherently entering data by hand, is time consuming and error prone, and tends to be a repetitive task, which can easily be automated.

These 8 tips notwithstanding, the role of technology to make an efficient inventory management process is of utmost importance. An efficient inventory management in today’s day and age demands a centralized database that is accessible to multiple resources in your business, across multiple locations and updates on a real-time basis – and that can only be achieved by adopting the right technology for your business.