what is inventory management
Inventory management simply refers to the handling and controlling of a company’s non-capitalized assets. For most retailers, this involves the overseeing and controlling of finished items that are ready to be sold.
The fundamental goal is to keep inventory levels balanced at all times without ever having too little products in stock. So staying on top of ordering, forecasting and storage are key parts of good quality inventory management.
why is inventory management important?
A retail business is useless without it’s inventory. Being able to manage inventory effectively and efficiently is therefore vitally important to cash flow and a great way to save money.
Understanding what you have, where it is in your warehouse, and when stock is going in and out can help lower costs, speed up fulfillment, and prevent fraud.
Your company may also rely on inventory control systems to assess your current assets, balance your accounts, and provide financial reporting.
Inventory control is also important to maintaining the right balance of stock in your warehouses. You do not want to lose a sale because you didn’t have enough inventory to fill an order. Constant inventory issues can drive customers to other suppliers entirely.
The bottom line? When you have control over your inventory, you are able to provide better customer service. It will also help you get a better, more real-time understanding of what is selling and what is not.
You also do not want to have excess inventory taking up space in your warehouses unnecessarily. Too much inventory can trigger profit losses–whether a product expires, gets damaged, or goes out of season.
Key to proper inventory control is a deeper understanding of customer demand for your products.
For many businesses, physical inventory is where capital is mostly tied up in, their biggest asset and therefore, their biggest expense. Properly managing this expense could mean the difference between success and failure. Ask yourself if transfers of inventory between locations (store/warehouse to customer, store/warehouse to distributor, store/warehouse to branches, production base to store/warehouse) are quickly, easily, and accurately recorded. Your answer will reveal a lot about how well your system is actually working.
The indisputable truth is that inventory control is vital to the survival of your business. If you do not have a good handle on your inventory you will never have a true account of how your business is doing. It is a competitive market out there. Do not let inventory excess or shortages become your downfall.
How To Control Inventory
There are many different ways to keep control of your inventory. One basic way is to create a spreadsheet with various columns for product name, item number, and quantity. You can have a column to deduct what you sell and ship. You can also keep a log of returns and new incoming stock.
Of course, this is an incredibly labor-intensive process that no growing business wants to deal with. It requires continuous manual monitoring to ensure every transaction is accounted for. The information is difficult to share, and another huge pitfall is human error. People are prone to make mistakes–mistakes that are difficult to track and result in inaccurate inventory numbers.
Ultimately, the more automated your system is, the less paperwork there will be. There is a whole host of inventory management software options out there. These software systems may offer integration with your enterprise resource planning systems, or multichannel integrations.
Of course, once you have the tracking systems in place, you need to figure out how you’re going to determine when to order new stock. Some use a stock control method called minimum stock, in which new stock is ordered once it reaches a pre-set minimum level.
If your needs are very predictable, you can use a fixed quantity control system. With this method, every time you place an order, whether it’s weekly, monthly, semi-monthly, your order will be for the same amount. Some people refer to this as a standing order.
Automate Your Inventory Management
How Stock Taking Helps Your Business
Stocktaking involves physically counting all of your stock and matching this up to your stock records to discover any discrepancies. The frequency of stocktake varies between businesses, with some preferring once or twice a year, while others prefer quarterly or monthly counts. If you are running a retail business, you should do what feels right for you – there is no right or wrong.
Discrepancies between your manual stock count and your electronic records allow you to pick up on a range of issues and put processes into place to ensure better stock control and management. This, of course, will lead to increased profits in the future.
Why Is Stock Taking Important?
As mentioned above, stocktaking highlights stock control issues and areas your business needs to improve on in order to be even more profitable. Here, we will list the reasons why every business should complete regular stocktakes.
1. Uncover theft
An unfortunate reality in the retail business is that theft will always affect your stocktake numbers and cause discrepancies. Even more unfortunate is the fact that staff are also to blame for these numbers.
While discrepancies due to theft are a fact of life and you will never be able to eradicate shoplifting or theft by staff completely, a stocktake will highlight whether you have a major issue on your hands. It may be the catalyst for a security review and a crackdown on problematic employees. Regular stocktakes alone will also be enough to discourage some employees from stealing.
2. Discover additional stock shrinkage issues
Theft is not the only loss of stock you will see. A regular stocktake will also highlight problems with damaged stock, unprocessed or missing orders, under/over supply and poor stock control practices.
Take this as an opportunity to improve in these areas. For example, if a pallet of stock was damaged due to a leak in your storeroom or warehouse, ensure that it is repaired so this kind of thing does not happen again.
3. Ensure that your business is meeting targets
If you find some major discrepancies in your numbers, you may not be on track with all of your financial goals. It is better to discover this sooner rather than later and readjust your forecasts while you can.
Trust us, it is better to fix this now, rather than experiencing a nasty surprise at the end of financial year.
4. Put product performance under the microscope
It is easy to lose track of which products are winners and which products you could probably do without. Stocktake will put this into focus for you. If you have large numbers of a product that has been on the shelves for months, it is a good indication that it is not popular and that you may have to slash prices to move the stock on.
It is not all bad news, though. You may discover a product that is selling extremely well, which means you can order more of it and even test the waters with related products.
5. Improve your stock ordering process
Following on from the last point – stocktake will highlight any shortages you weren’t aware of and will prompt you to order more. There are things that even good inventory management softwares can not always pick up.
For example, you may have had on record that you had a whole pallet of those popular t-shirts, but stocktake could reveal that a large portion were damaged in transit, or even stolen.
6. Find flaws in your pricing strategies
Nothing puts your finances into the spotlight like a thorough stocktake. This is a great opportunity to analyse your sales and profits and potentially revise any pricing strategies that are not generating maximum profit.