Every dollar counts for any small business seeking expansion and growth in the current highly competitive marketplace. Efficient inventory management helps businesses organize themselves better so they can offer a seamless experience and reduce costs for their customers. Implementing cost-saving techniques that reduce fixed and variable costs related to inventory management will go a long way in improving your bottom line. This article will provide five small inventory management hacks to improve your operations.
What is inventory management?
Inventory management is the process a supplier goes through to order, store, track, use, or sell inventory or stock to retail outlets. It is end-to-end management that begins the moment you order raw materials and ends once the product lands in the hands of a customer. Effective inventory management helps you avoid the following logistical issues:
- Increased storage costs
- Mounting unsellable dead stock
- Spoiled products
- Massive order cancellation volumes
- Missed deliveries and delayed turnover
How do operations with small inventory items manage their stock?
Here are some of the techniques that successful small businesses use to manage inventory:
Track your inventory in real-time
Small businesses must maintain up-to-date stock levels to guarantee seamless business operations. An effective way to meet this goal is to track your supply and demand balance in real-time. Real-time inventory tracking ensures adequate stock availability to meet customer demand and avoid potential backlash from customers due to any fulfillment hiccups. Use robust inventory management software to accurately track the current inventory level and quickly identify what products you need more of and which products you may need to scale down on. Inventory management software will give you some great insight into improving your inventory management processes.
Conduct demand forecasting
Even with accurate tracking of orders, you may still encounter order fulfillment issues when demand for your products spikes due to unexpected demand. Perform demand forecasting to determine the amount you should have on hand at all times. Having a buffer stock can help you avoid unnecessary procurement, overstock, and stock-outs. Some of the factors that can help you forecast demand include market trends, overall economic conditions, upcoming promotions/events, and sales data for the previous years.
Use FIFO technique
First-in, first-out (FIFO) is an effective inventory management principle that most successful businesses practice. FIFO means that your oldest inventory should be sold first. This is crucial, especially for perishable or damage-prone goods, as it helps you avoid creating unsellable items. You should also implement the FIFO principle on non-perishable products to avoid stocking outdated products with no value.
Audit and conduct inventory inspection
Reviewing and conducting regular inventory audits is an effective way to spot minor issues before they become costly problems. Successful businesses conduct regular inventory audits on a per-week and per-month basis. Although it is possible to conduct a physical inventory that involves counting everything you have on-hand, this process can be tedious. Also, physical inventory inspections disrupt normal operations and can limit your scope. The easiest way to do the audit is to rely on inventory management software that generates real-time data on the number of products you have.
Identify low-turn stock
If you have stock that has hardly sold in the last 6 to 12 months, stop stocking those items. Use different strategies to sell that stock before they become obsolete or damaged. You can use special discounts or promotions to get rid of the stock and save on space and storage costs.
What are the four types of inventory?
Inventory can be classified into the following types:
- Raw materials & components – These are the materials a company or manufacturer uses to produce finished products. Once the product is completed, the raw materials and components used will become unrecognizable. An example of raw material is the oil used to make shampoo. Raw material inventory focuses on bits and pieces of component parts that are currently in stock but have not yet been used in the process of creating finished goods.
- Work in progress – Work in progress (or, WIP) inventory deals with the items in production. These include raw materials, labor, overhead, and packing materials. Any direct and indirect raw materials your business uses to create finished goods would fall in the WIP inventory. For example, if you sell equipment, the packaging is considered a WIP.
- Finished goods – These are the items that are ready to sell. This is the inventory of items you have listed for sale. Any product ready to be sold to the customer falls under the finished goods inventory category.
- Repair & operating supplies – Maintenance, repair, and operations inventory (or, MRO) is the inventory of supplies that supports the manufacture of a product or the maintenance of a business. This inventory could be at a supplier, in storage, in transit, or out for delivery.
What are the 80/20 inventory rules?
The 80/20 inventory rule states that 80% of your results should come from 20% of your efforts. The rule is based on the Pareto principle that suggests 80% of effects come from 20% of causes. This rule can help you identify the most profitable components of your inventory so that you can be sure to always keep them in stock. You can also use the principle to determine the least profitable parts of your inventory to keep those quantities at a minimum. The following are some of the benefits of using the 80/20 inventory rule:
- Reduce costs – You can reduce losses and costs by identifying low-value items that are not selling. When you combine this principle with automation tools such as inventory management software, you easily identify areas for improvement and opportunities for cutting costs.
- Improved time management – By identifying which inventory tasks provide the most benefit, you will be able to organize your day for efficiency.
Optimize your inventory with Flexcon supply chain solutions
Inventory management is a critical asset that helps you minimize the cost of inventory, enhance customer experience and improve your profitability. Efficient inventory management can also help you manage spontaneous demand changes without compromising customer experience and product quality.
Leveraging a robust material handling system ensures efficient management of existing and future inventory. Such systems also make it much easier to accommodate the storage of larger inventory quantities of in-demand products. Flexcon is committed to helping you optimize your supply chain by providing customized material handling solutions that meet your needs.
We provide leading manufacturers, distributors, dealers, and businesses with material handling containers, protective packaging, dunnage, divider systems, and pallets designed to streamline your operations. Contact us today to schedule a consultation.