Inventory management isn’t exactly something many find thrilling. The idea of regularly counting inventory sounds unappealing to most. However, it is necessary. After all, inventory costs money. You need to manage yours to stay financially healthy. This is especially true if you’re looking to take out small business loans; you want to be able to prove your company is worth the investment to any interested parties.
Committing to inventory management saves you money in a variety of ways. It helps prevent spoilage, guards against the dead stock (items that can no longer be sold for various reasons), and reduces overall storage costs.
Luckily, keeping track of your inventory doesn’t need to be as difficult as you may expect. You just need to keep certain tips in mind. By applying the following advice, you’ll be much more likely to save money in the long run.
Determine Par Levels
A par level is simply the minimum amount of a particular item you can have in stock before needing to reorder it. Setting par levels helps you avoid running out of items.
That said, the right par level for one item may not be right for another. Something that sells frequently will have a different par level from an item that’s only sold occasionally. Taking the time to set the right par levels for each item you carry will help you save time on placing orders in the future.
Adopt the FIFO Approach
First In, First Out (FIFO) is an established inventory management principle which involves selling items based on their age. Your goal is to sell older items first and newer items last.
This is effective for several reasons. First, if you offer any items that spoil (such as perishable foods), selling older inventory first helps you make sales before those items go bad. Additionally, packaging can get damaged over time. Selling items before this happens is essential.
If you sell many different products, you need to prioritize some over others when implementing an inventory management plan. You won’t have time to devote equal attention to all items.
To prioritize effectively, apply the ABC method. Also known as ABC analysis, this method involves separating your products into three distinct groups:
- A: High-value products with low sales frequency.
- B: Moderate value products with moderate sales frequency.
- C: Low value products with high sales frequency.
Products in group A need a relatively significant degree of attention because their sales can have a major financial impact. Group C items require less attention due to their low financial impact and constant turnover. Group B items require a moderate degree of attention.
Focus on Forecasting
Sales forecasting is another important aspect of inventory management. It’s easier to determine how much of certain items you need to have in stock if you can accurately predict how much you expect to sell.
That said, sales forecasting can be very difficult. You need to account for many different factors, including historical sales patterns, market trends, promotional efforts, current growth, and more.
That’s not to suggest you should ignore this task. Instead, you should be proactive about generating regular forecasts. The more effort you devote to sales forecasting, the more accurate your forecasts will eventually be.
There may come a time when you need to place emergency orders. Suppliers will be more inclined to help during these emergencies if you pay them reliably and communicate with them effectively. Maintaining positive relationships with suppliers is key to proper inventory management.
Again, this task is important, but it doesn’t have to be difficult. These tips will help. Use them to save more money than ever before.
Check out my guide on how to start your business right with tons of useful tips I learned by successfully starting, building, and selling multiple companies.