Inventory management is important for a number of reasons, chief among them is that it saves you money. If your stock is managed poorly, you can lose money in a number of ways. These include:
- Spoilage – This is where perishable stock, such as make-up and food, has gone past its use-by date. This stock is unable to be sold, which means that the money already spent is lost.
- Dead stock – Stock that is no longer up-to-date or in season, such as last year’s fashion or technology, is considered dead. This means the likelihood of recouping the wholesale outlay is low and it will generally be sold at a loss or a very low mark-up.
- Storage – Inaccurate inventory management can lead to increased storage costs, with the business not tracking how much product they have on hand at any one time. This problem can be particularly damaging for online shops as brick and mortar store usually store stock on site, not in a warehouse where the rental rate could be dependent on how much is space it used.
How to optimise your inventory management
- Par levels – These are the minimum stock level for each product. This is the most basic technique, ensuring you always have stock coming in, without holding too much on hand and ending up with a dead stock situation.
- FIFO – First-in First-out is a simple way to ensure your stock is adequately cycled, keeping the freshest products on the shelf. Much in the same way a convenience store will keep moving the cold drinks to the front when they replenish the fridge, this helps limit losses to spoilage.
- Establish relationships – Being on good terms with your suppliers will help you when it comes to returning slow moving items, or getting restocked quickly when something is selling well. More than simply a chat and a handshake when they come around, it’s is a process of maintaining good communication.
- Regular audits – Understanding exactly what is sitting in your warehouse is vital to the entire process of inventory management. Being surprised when visiting the storage area is a sign of poor management and a path to significant losses. While a stocktake can be an annual event, a simple audit and cross check between the theoretical on-hand figures and the actual numbers can save a lot of problems in the future.
Take control of your business from the top to the bottom
Inventory control is vital to turning a profit. Stock is simply money in a different form, with everything that goes missing, expires, or becomes unsellable, dollars that you will never see again. Maintain a conscientious, proactive attitude to your stock and your business will be better prepared for busy and slow times.