Inventory Management Strategies & Tips

How will an inventory management system help my business? Learn about the benefits of inventory management and the strategies for success.

As a business owner, inventory management may sound like a straightforward concept, but the particulars of your business’s inventory management processes can have major implications for how your business operates. Learn more about what inventory management is and use these best practice tips.

What is Inventory Management?

Simply put, inventory management is the system you use to track your business’s inventory. Your products and all the materials needed to create those products comprise your inventory – and inventory management is the work that happens behind the scenes to manage ebb and flow of inventory or materials. Effective inventory management processes can help you manage your business’s flow of goods and products. Many business owners rely on inventory management software to help keep these processes organized.

What are the Benefits of Inventory Management?

Accuracy. A good inventory management strategy improves the accuracy of inventory orders. An inventory management system can help your employees keep track of which products you have on-hand or backordered. This saves the labor and effort of having to do an inventory recount every month to ensure your records are accurate.

Organization. A good inventory management strategy leads to a more organized warehouse. Shifting inventory under the guidance of an inventory management system can improve organization by placing fast moving items into improved selling areas or into prime warehouse real estate. The more items are moved around, the risk for damage increases. An inventory management tip: sometimes the fastest moving products are not the most obvious ones. Look to product components or accessories, instead of just focusing on the final sales product.

Reduce employee expenses. The time spent by employees dealing with inventory problems is time wasted. Use a multi-location inventory management tool to help alleviate the strain, so employees can track inventory on-the-fly for customers no matter what location the employee is working from.

Efficiency. If your business does not already use bar codes in the warehouse management process, a good inventory management tip is to contact an inventory management software company and explain your business to them. The types of efficiency improvements their software can provide may give you an idea what features you need when you make your final decision on an inventory management system. These conversations may open your eyes to the possibilities of task automation or inventory tracking technologies available to you.

Save money. Every inventory management improvement is like money in your pocket. Little improvements add up to big savings. Making an employee’s time more efficient, cutting a customer’s wait time, and managing inventory levels that allow for quick product turnover may outweigh the cost of installing an inventory management system across your business lines.

The Danger of Overstocking

• The risk of “dead inventory”, which is to say inventory that sits in the warehouse and does nothing. It can be calculated that the cost of holding inventory that won’t move from the shelf can represent a shocking 25%-30% more than the inventory’s unit cost value. There is the original cost of the inventory, then the cost to manage inventory levels while it’s waiting use.
• Inventory spoilage. Perishable items are most sensitive to overstocking errors. Merchants that deal in perishable items may be well aware of how to manage their inventory on those items, but many items, such as makeup or film, that aren’t traditionally known as perishable may still have spoilage dates. Throwing any inventory into the trash is a waste.
• Greater storage costs. If you have slow moving inventory taking up space in your warehouse, you might need to rent additional space to have room for the faster-moving and revenue generating items. By not utilizing the space for faster selling items, you may miss the opportunity for new product lines or backstock of popular items.

The Danger of Understocking

• Missed sales. Unless your business works on pre-orders, you can’t sell something you don’t have. If you do not have enough product to satisfy your customers, you‘ll never achieve the full potential profit from customer demand.
• Customer decline. How many times can a customer be disappointed before they find somewhere else? Dissatisfy the customers enough, and they will turn to a competitor that can be relied on to satisfy their demand.
• Overselling situations. When you understock across your inventory, the likelihood increases that you run out of stock while simultaneously selling your last items on multiple channels. The airline industry is known for overselling their seats, much to the anger of many passengers.

Inventory Management Tips & Strategies

When searching for the right inventory management system for your business, look for software that allows you to view your data in useful ways. Consider these tried and true software features for inventory analysis and discuss them with your software reps.

• • Tracking of historical sales to predict future demand.
  • Identifying ordering patterns common to different times of the year, such as seasonal sales.
  • Predicting the impact of marketing campaigns on sales.
  • Track many different product categories to monitor customer demand.
  • Centralize inventory processes across your business.
  • Provide access to inventory data across your business.
  • Track sales across multiple sales avenues such as Amazon, eBay, or other Distributors.
  • Schedule inventory auditing when least intrusive to your business.
  • Analyze your inventory using the ABC analysis method, where A represents high value products and C represents low value products.
  • Set par levels or minimum inventory levels to prevent understocking.
  • Set reminders for restocking and reorder alerts.
  • Provide inventory reporting in a wide variety of formats.
  • Just-in-time restocking analysis.
  • Calculate raw material needs during annual sales cycles.

With a clear understanding of your inventory, you have control over your profits. You know how much you need to have in stock in order to fulfill every order and earn maximum revenue without losing money through excess inventory.

Readers should consult their own attorneys or other tax advisors regarding any financial or tax strategies mentioned in this article. These materials are for informational purposes only and do not necessarily reflect the views or endorsement of Santander Bank.

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