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 manage inventory more efficiently.
In this guide, we will cover the following:
- What is inventory management?
- How inventory management works
- 5 stages of the inventory 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. Inventory management 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. You also don’t want to be short of an item that’s profitable and popular with your customers.
Inventory management is all about trying to find a balance and keeping your business running smoothly and keeping your customers happy. So, how does it work?
How inventory management works
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:
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. To make as many sales as possible, it’s important 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 and how much stock is left over.
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 huge problems. Here are some reasons why inventory management is so important:
1) Keeping your customers happy
To keep your customers satisfied, you need to consistently supply them with the goods that they want. If the customer sees you as a reliable source for buying things they need, customers are likely to keep coming back for more.
The opposite can be said when you rarely have the right product for your customers. If you don’t consistently stock the items they 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 important. Not having the right product could cost them profits and other customers. As a result, clients may stop purchasing from your business.
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 costs 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 less 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 less sales. By having a system in place, you’re making sure that there’s a smooth flow from purchasing to sale.
3) Growth of your business
As your company grows, your inventory management will become even more important 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 important 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 you can make it more efficient.
1) Develop a system
If you really want to choose your inventory management system more efficiently and sustainable, you need to establish a system that will help you manage your inventory. If you’re a small company with a relatively small inventory, you can start with a simple spreadsheet. As you grow, you can start 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 will experience a number of benefits, such as:
- A secure, reliable supply of what you need
- More competitive pricing
- Insider information on emerging trends
3) Focus on your needs
Developing an inventory management system can seem like a huge task, but starting off by identifying your best-selling products is a great way to start. 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 then you will make a good start at keeping your customers happy and the start of a solid inventory management system.
4) Use mobile technology
Inventory management has never been easier thanks to your smartphone. You can use apps to scan barcodes, track goods easier and access the data you need faster. The days of needing to be in the office to keep track of things are gone. You can now easily stay up-to-date or make changes to your inventory management process whenever or wherever you are.
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