Inventory management: The basics and beyond
Inventory Management is an easy idea to understand. All you have to do is have enough of the inventory you need where you need it at a good cost to you, but the nit and grit of actually doing this can be pretty tricky, so we’re going to break down the best inventory management techniques for you, right here.
Inventory Management and the “just right” Amount
Having the “just right” amount of inventory is a must. If you don’t have enough, you’ll lose business, but if you have too much, you may have to get rid of it at a reduced price. Both situations lose you money.
Most businesses track their inventory, so they can see how much they’ve needed in the past. They use this information to predict how much they’ll need in the future, but that information must be accurate.
The most effective way to track past inventory is with an inventory management system. Not only do these systems track past inventory, but they effectively predict future, inventory needs eliminating the tricky guesswork.
At the end of the day, you must track the information effectively.
Paying For Inventory: Sometimes More is Less
Nobody wants to pay more than they have to for inventory, but be careful. Sometimes more is less (in a good way).
Sometimes suppliers offer price breaks if you order more products, but if you’re not careful you can end up with too much product which will cost you more to store. Even worse is when you have too much of the product, and then it expires on you.
Skipping the price break for the “just right” amount of inventory can save you money. Remember more is often less.
To help with this is something called the ‘Economic Order Quantity formula (EOQ)’. Don’t worry. This just helps you know how much inventory to add to your business, so you won’t lose money on storage cost etc. It will give you the optimal amount of inventory you should maintain.
It is definitely something worth getting familiar with, and there are free calculators available to help, so you don’t need to mess with the confusing formulas.
It’s Time to Reorder
Now you know how much inventory you need, but you have to time it right. This is your reorder point. Obviously, you want perfect timing, or you will run into having too little or too much. Remember, both will cost you money.
Your reorder point is basically when you need to reorder. So keep in mind a few things before deciding when to reorder. Your items must be:
All of these take time.
Use past information and your inventory management system to time these as perfectly as possible, and keep some safety stock just in case an unexpected problem comes up. Don’t worry; it happens to all of us.
Safety stock is just extra inventory to get you through any unexpected delays or gaps in shipping etc. This will help keep your business humming through any glitches.
Take Inventory Management to The Next Level
Whether you sell through a physical store or online, keeping track of where your inventory is can be difficult. Both ways have positives and negatives, but to make sure you get the most profit and the least amount of headaches, invest in an Inventory Management System.
An Inventory Management System will track all of your inventory everywhere in real time, so you don’t need to hassle with excel spreadsheets and formulas. They also reduce human error because there’s less human involvement. Any growing business should make this investment.
Remember that because these systems track inventory in real time you won’t have any guess work when planning reorder points. This means you should always have the “just right” amount of inventory we discussed above.
All things considered, buying Inventory Management Software is a win-win deal. You have fewer headaches, fewer mistakes, and more time for doing what you do: being a successful entrepreneur.
Talk to an expert who can help you choose the right software and be a successful entrepreneur.