When it comes to running and growing your business, being able to manage your inventory is essential. According to the Motorola Future of Warehousing study, 66% of retailers will have invested in warehouse and inventory management software. Software helps these businesses to manage inventory more efficiently.
In this guide, we will cover the following:
- What inventory management is
- How inventory management works
- Five stages of the inventory management process
- How to improve your inventory management
What is inventory management?
Inventory management is the process of ordering, storing and using your company’s inventory –– from purchasing your raw materials right through to the sale. It ensures that you have the correct amount of products at the right time for maximum efficiency.
For example, you don’t want to be overstocked with a product that isn’t selling quickly. But, on the other hand, you also don’t want to be short of an item that’s profitable and popular with your customers.
Inventory management is all about finding a balance and keeping your business running smoothly. And most importantly, keeping your customers happy. So, how does it work?
How does inventory management work?
There are many components to inventory management. Consequently, it’s vital to track everything in your inventory from the start of your supply chain (the process of making and selling your goods) to the sale of your end-product:
You are buying the materials you need to make your products. Purchasing can involve the sourcing of raw materials or ready-made products to sell with no manufacturing required.
The manufacturing stage involves turning your raw materials into the finished goods that you want to sell. However, this step isn’t necessary for every company. For example, a lot of retailers purchase their products ready to sell straight away.
3) Storing stock
This is when you store your raw materials (if necessary) and your finished goods before they’re sold.
The sales stage is about selling your products to the customer and taking payments. It’s essential to ensure you have the products your customers need and that you’re keeping track of stock going out.
Every company needs to track:
- How much stock they sell
- How much profit is made on each product
- How much stock is left in storage or available to customers
By managing your inventory, you’re ensuring that your stock is being used as efficiently and effectively as possible.
Why is inventory management so important?
Good inventory management can help ensure the success of your business, while poor inventory management can cause immense problems. Here are some reasons why inventory management is so important:
1) Keeping your customers happy
To keep your customers satisfied, you need to supply them with the goods that they want consistently. If the customer sees you as a reliable source for buying things they need, they will likely keep coming back for more.
The opposite can be said when you rarely have the right products. If you don’t consistently stock the items customers need, it’s unlikely that they will come back very often.
If you’re supplying products to other businesses, the need to consistently stock the right items becomes even more critical. Not having the right product could cost them profits and other customers. As a result, clients may stop purchasing from your business.
You can learn more about the influence customers have on a business here.
2) Keeping costs low
Ordering the right amount of products and raw materials can be costly. However, when you order too many, you might increase your expenses unnecessarily. For instance, you may have to pay more in storage costs or pay for delivery back to the supplier. Or perhaps you’ll have to order fewer units of a popular product to compensate for overbuying a less popular item.
Chances are, by not supplying the right products for your customers, you’ll make fewer sales. But, on the other hand, by having a system in place, you’re making sure that there’s a smooth flow from purchasing to selling.
Learn more about how to improve your cash flow management here.
3) Growth of your business
As your company grows, your inventory management will become even more demanding and challenging to manage, which is why it’s essential to keep improving it. By managing your inventory effectively, you can make sure you have enough for keeping your customers happy without spending too much money.
You’ll also have more time to focus on other vital parts of your business, especially those that will lead to more growth, such as sales, negotiating with suppliers, and marketing your business.
How to make inventory management more efficient?
So, now that you know what inventory management is and why it’s so important, it’s time to learn how to make it more efficient.
1) Develop a system
If you really want to choose your inventory management system more efficiently and sustainably, you need to establish a plan that will help you manage your inventory. If you’re a small company with a relatively small amount of stock, you can start with a simple spreadsheet. Then, as you grow, you can begin to use different software systems to help you.
2) Work on relationships with suppliers
For any business, a good relationship with suppliers is key. If you have a good relationship with them, you improve your service to your customers and make your business more efficient. They will also support your business because the more it grows, the more you will need to be supplied. You can improve your supplier relationship by:
- Understand their needs and routines. Do your best to follow their processes and timelines.
- Be a good customer. By paying on time and keeping your records organised, you will stay on suppliers’ good side, meaning they will be more than happy to supply your business.
- Communicate with your supplier. By being willing to maintain a dialogue and receive feedback, you’re more likely to think of new ways to improve your supply process and your relationship with your supplier.
3) Focus on your needs
Developing an inventory management system can seem like an impossible task, but identifying your best-selling products is a great way to start. But of course, it’s unlikely that every product will be popular with all of your customers.
Focus on what your customers love and make sure you always have that product in stock. If you can do that, you will make a good start at keeping your customers happy and maintaining a solid inventory management system.
4) Use mobile technology
Inventory management has never been easier, thanks to your smartphone. You can use apps such as Orderwise, Katana and Shipedge. These apps are helpful for:
- Scanning barcodes
- Tracking goods in storage or in-store
- Accessing and storing data easier and more efficiently
- Optimising storage operations
There are plenty of inventory management apps available, so make sure you find the one best suited to your business. They will help make your business more efficient and help to reduce costly errors.
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