As a new business owner, there’s a lot to think about. Initially, inventory management might not seem like the most important task on your to-do list. However, over time, you’ll discover that it’s one of the key ingredients to keeping your business running efficiently and profitably. Here are some inventory management tips to help.
What is Inventory Management?
Supply chain issues haven’t just produced higher prices and slower lead times – they’ve actually exposed some of the big inventory management mistakes many businesses have covered up for years. In fact, you might say inventory management is more important today than it’s ever been.
In essence, inventory management is the process of ordering, stocking, and leveraging business materials and products. The goal of inventory management is to avoid ordering too little, which makes it difficult to meet customers’ expectations and/or fulfill orders. At the same time, you don’t want to overstock items, which can suck your cash flow dry and cause unnecessary stress on your people and systems.
As any good entrepreneur will tell you, effective inventory management is found somewhere in between these two extremes. In other words, it’s about aligning inventory with demand for minimal waste and lower possible costs. While easier said than done, there’s almost always room for improvement.
4 Tips for Improving Inventory Management
As you tackle the topic of inventory management within your own business, here are several tips and best practices you can use to gradually improve your efforts:
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Invest in Your Vendor/Supplier Relationships
It’s easy to get so caught up in the mathematics of inventory management that you forget about the relational side of things. If you aren’t investing in the relationships you have with your vendors and suppliers, you’re undercutting your efforts and doing yourself a disservice. That’s why we recommend starting here.
Don’t restrict your communication with vendors and suppliers to problems. It’s important that you also provide positive feedback and make time to chat or call just so you can invest in the relationship. This might seem like a waste of time at first, but this is what drives the relationship forward.
Proper product and inventory tracking can significantly improve your efficiency. One way to grow in this area is by investing in the right tools – including systems for centralizing your tracking efforts.
Good inventory tracking can help you preserve your product quality by helping you determine exactly how long a product has been in storage. It also gives you keen insights into shelf life, storage capacity, and the flow of products in and out of your warehouses. Robust tracking like this puts your entire team on the same page and leads to much greater efficiency.
Things don’t always go right. In fact, you should assume that things are going to go wrong more often than not. (This isn’t necessarily the case, but it helps you prepare for these instances when they do happen.)
For best results, improve your forecasting abilities and look for ways to reduce the lead time (which helps you move faster when there are supply chain issues or stock shortages). It’s also wise to have backup plans for when/if your facility runs out of space. This might include options for finding more space within an existing warehouse and/or expanding into another warehouse.
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Prioritize the 80/20 Rule of Inventory
As you probably know, the 80/20 Rule applies to inventory. In this case, most businesses find that 80 percent of their revenue is generated by 20 percent of their stock.
At first glance, you might assume that the best option is to eliminate the 80 percent of your stock that isn’t moving the needle for your business. However, that’s not always the best play. Instead, you should focus on optimizing the 20 percent of stock that drives your business. The most profitable 20 percent should always be in stock. In other words, you have to make sure you always have enough to sell. (If anything, you want to slightly over-order this inventory.)
Adding It All Up
When you get serious about the finer details of your approach to inventory management, good things happen. There will still be issues, friction, snags, and bottlenecks. However, they’ll be much fewer and further between. And at the end of the day, isn’t that one of the overarching objectives of managing inventory? The smoother and more predictable your inventory is, the better it is for everyone!
