Inventory management is that part of the businesses that support the whole business system and should never be neglected. When you start a business, your capital, basic infrastructure, and your inventory are the most crucial part. With time many businesses shift their focus to profit and products, completely forgetting about inventory management.
Your inventory is not just an item to sell out and refill but something so precious that should be taken care of every day. Inventory management does not just allow you to manage your stock but also your money. Before we find out how these two are related, let’s learn some basics!
What is Inventory Management?
Inventory management is a planned strategy of keeping the data of products and raw materials a company is dealing with. The process involves anticipating the approx. usage and keeping a track of ordering, storing, and consuming (the consumption could be done within the organization itself for manufacturing, etc. or could be sold out to consumers).
What is the Importance of Inventory Management?
1. Efficient Planning
When you start keeping a track of the data of your inventory, you start analyzing what is enough and what needs to be refilled. This way, you can successfully plan current and future replenishments.
Inventory Management system helps to avoid unnecessary refilling of the stock and takes care of the shortages that might occur due to poor management.
2. Saves Cost
As per Storis, $50 billion are lost by businesses every year due to lack of inventory management.
When you do not have the knowledge of what is in your inventory, you tend to replenish it blindly every month. This affects your cash flow heavily, losing a lot of money into something which was not required.
With inventory management, you can invest your money into only those things that are required to be stocked for a particular time. This way, it also helps you save a lot of time in keeping the track of a huge stack of inventory plus saves the money to handle it. I highly recommended to read this article that how Outsourcing Can Help You Grow Your Small Business?
3. Well Arranged Warehousing
As mentioned above, blindly stocking up can eat up too much of your space. Inventory management keeps a check that only required items are kept in the warehouse and no money is spent on the inventory which is not required till the next replenishment.
With only useful inventory in hand, it saves you a lot of space and makes your warehouse more organized and clean.
4. Happy Customers
Excessive inventory leads to damages and too little inventory leads to the shortage. Customers are happy and are likely to come back to a business where such mistakes are not committed.
You can keep your customers happy with the timely delivery and well-kept products. With inventory management, you can never go wrong with handling these two major issues. you can learn more about how to Build Customer Trust in eCommerce.
How to Track Inventory in Your Business?
Bringing in the process of Inventory management in your business can reap you amazing benefits. There are mainly 2 ways of doing it:
If you are a small business owner, that managing inventory manually could be considered. However, mostly it takes a lot of effort, time, and people to do it. Though this is also a way to keep a track, we recommend the second way:
Inventory management done digitally is easier and a modern way to do it. Keeping the complete data online gives you the flexibility to reach it anytime.
Some Recommended Ways for Inventory Management Are
Using Barcodes: Scanning your inventory that comes in and goes out according to their categories can help you find out how many you have let in and how many have sent out. This data is useful in managing the supply and delivery chain.
Dashboards: A dashboard is a place where you see the summary of your collected data. You can skim your important data related to inventory into a dashboard to get a clear idea of what is available and what is not.
The data seen statistically can help you manage well. Zoho Analytics can help you create your own dashboard consisting of menus, widgets, and charts.
Inventory Tracking Tools: There are some amazing tools and software available online that you can simply download on your mobile phone and start tracking at just one click. If you have an individual handling inventory management, then you can install such tools on the computer and get the reports daily or as feasible. ERPAG is one such software that helps in inventory management and saves the data over the cloud.
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What Techniques Are Useful in Inventory Management?
Once you plan to implement Inventory management in your business, you should know about a few tricks that can help you in managing your inventory in a better way. We have created a list of such 4 techniques that will help you make an efficient inventory management plan.
4 Inventory Management Techniques
1. Following the FIFO Method
FIFO stands for First in First out. This method determines that you should sell out the your older inventory first. It is an effective technique as it makes sure that you do not have any old stock sitting idle and becoming out-dated.
The method is most common in inventory management and used mostly for the items that get easily broken, ruined, or are perishable.
2. Following the LIFO Method
LIFO stands for Last In First Out. This method determines that you sell out those items first which are the most recent. The reason to use this technique is that with LIFO, the companies sell out the newest items which are assumed to be at a higher cost and bring lower profits. This technically results in lower income tax.
That is the only reason to use the LIFO method. However, this method can also lead to the loss of the older stock as it might become obsolete with time and not fit for selling.
3. Setting Up A Limit
When ordering your inventory, it is better to set a limit each month. This way, you only need to order in a limited amount just so that you never stock-up too much and never run low at the same time.
Implementing this technique may time initially in decision making and finding out the number and types of products to set a limit of/for.
4. Intelligent Future Forecasting
When you plan, you plan for the upcoming future. Future forecasting includes keeping the inventory according to the plans that the company has set and also the activities that are not planned but might occur.
These may be the occasions and the offers that the company has planned and some contingencies that might happen such as fire, flood, and other unpredicted calamities.
To combat such instances, having a plan B of keeping an emergency stock could help you survive the instant requirements.
5. Regular Tracking
As mentioned above, there are many ways to keep a track of your inventory. But it is not a one day job and needs to be done on a regular basis. Regularity in tracking brings accuracy and gives the idea of the methods used are effective or not.
Inventory management is a non-negotiable part of every business. Many huge companies do follow the procedure but a lot of small businesses are still not aware or merely neglecting the need of it.
Billions of dollars can be lost due to the lack of inventory management. Understanding its importance and implementing effective and efficient ways of inventory management can help businesses save money, space, and time. We highly recommended to read this article Boost eCommerce Business with Third Party logistics.