Essential Tips for Managing Inventory
You would think that managing inventory would be a priority for business owners, since they most likely have a significant chunk of capital invested in their inventory. The cost to acquire or manufacture a product may be your company's largest expense.
For business owners who don't utilize an effective inventory management system to track demand, sales and delivery processes, idle inventory can also lock up a large portion of a firm's cash. That frequently represents cash that might be better spent on new equipment, employees or locations.
In fact, too often today, owners neglect this critical component of a successful business. According to the report The State of Small Business in America 2016, published by Babson College in Massachusetts, 43 percent of businesses in the U.S. still rely on pen and paper or spreadsheets to track inventory or don't track inventory in any way.
The Dangers of Neglecting Your Inventory
Businesses that mismanage or ignore inventory become easily susceptible to data entry errors, shipping mistakes, and inaccurate or unreliable information about what is actually in stock. With such mismanagement, you're setting yourself up for customer dissatisfaction and loss of potential sales.
The great irony revealed in the study, which was based on a survey of nearly 2,000 business owners nationwide, is that 56 percent of those entrepreneurs responded that they still hope to improve customer experience, and 57 percent aim to grow their revenue.
Moreover, other studies indicate that the leading supply organizations that employ sophisticated analytical tools are able to improve inventory levels by between 20 percent and 50 percent, resulting in long-term savings for those businesses.
Take Steps to Improve Your Inventory Management
There are steps you can take to ensure that you're maximizing inventory management. Manufacturers particularly can foster a healthier business if they focus on the following four areas:
Be frugal. That means not only spending less money, but also identifying effective ways to keep your costs down.
Track costs accurately — don't guess. Total the costs of labor, parts, equipment and other items necessary for finished products, then set appropriate, competitive prices for your customers that will provide a healthy profit.
Track inventory. Consider researching and investing in sophisticated tracking software that provides efficient inventory tracking solutions and is appropriate for your business type and size. You have many choices, so you should be able to find one that works for your business; furnishes useful features such as automatic work orders, multiple location tracking and warehouse management; and fits your budget.
Monitor sales. Monitor sales trends not only to position your company to track product life cycles and seasonal demand, but also to avoid being blindsided when shifts occur in demand. Being fully aware of trends and sales flow will enable you to plan better for inventory levels depending on both different seasons and different locations. Close and accurate sales monitoring usually pays off in higher sales and lower costs.
Why Not Enjoy the Benefits Instead?
Committing to these practices should put you in a better position to weather lean times, as well as to take advantage of robust periods in your industry. The primary goal is to leverage a clearer perspective and understanding of your inventory in order to make informed decisions that will strengthen and increase your competitive advantage.