A hands on guide on how to improve your inventory management.
In the new year, we all want to be more organized, especially when it comes to our business. Today, we’re going to focus on how to keep inventory, and how to improve your inventory accuracy. These are fundamental to running your business successfully – so let’s dive in and figure out why and how to improve your inventory management.
Why you should always improve your inventory management
Knowing how to keep inventory on track is one of the most important aspects of running your business. Why? Improperly managed inventory often leads to unnecessary losses, such as product waste and dead stock. By effectively managing your inventory, you’ll prevent having to toss expired products, or being stuck with immovable stock you can’t sell.
For many small businesses, inventory is the greatest expense. So why wouldn’t you want to manage it properly? Inventory management can be the difference between succeeding and failing. So, that leads us to our next question.
How do I improve my inventory management?
There are several techniques to keep your inventory managed. Your technique depends on your business, your stock, and the type of processes you’re using to track inventory.
- Reorder points and Safety Stock
As you probably already know, the reorder point is the stock level that indicates you need to re-order. This number is crucial for staying on top of your inventory. Likewise, safety stock basically works as an ‘emergency’ stock when you’re running low on a product. It’s important to identify your reorder points, and to always have safety stock on hand so that you don’t run out of items and miss sales.
To calculate your safety stock, follow this formula:
Safety stock = (Maximum daily usage x maximum lead time) – (Average daily usage x average lead time)
To calculate your reorder point, follow this formula:
Reorder point = Lead time demand + Safety stock
- First in, First out (FIFO)
This technique for improving inventory management is a staple for all business owners. It basically means that the first stock you receive should be the first stock you sell. This technique is a must for perishable products like food, make up, or hygienic products, but also works for non-perishables too. The longer you store an item without selling it, the more wear it accumulates, and the more dated it becomes, and the harder it becomes to sell. It’s in your best interest to put stock out on the floor as soon as you receive it, instead of letting it collect dust in your warehouse.
- ABC prioritization
The ABC technique means you segment your products into three categories based on their value, or their significance to your revenue. For example:
A = stock that represents the majority of your revenue
B = stock that represents some of your revenue
C = stock that represents the least of your revenue
By categorizing your stock based on the ABC priority method, you know which products you should always have on hand (A products) and which products are less urgent to reorder (C stock).
Easy tips on how to improve your inventory management
On top of following the techniques outline above on how to improve your inventory accuracy, there are other steps you can take as well.
- Inventory management tools
We recommend for every business (no matter how small) that you take advantage of some kind of inventory management software to help you keep track of your inventory. Keeping track of stock with a simple spreadsheet may work in the earliest stages of your business, but there are a number of issues with this approach. There’s lots of room for error, it’s not scalable at all, and it’s an unnecessary time-consuming process that is so easily avoidable.
Try to get a POS that has a built-in inventory management software. Or, for a list of the best WooCommerce inventory management software tools, click here.
- Online and In-store integration
If you run an online store as well as a physical store, it’s essential to keep both inventories synced. Point of sale solutions like Oliver POS stay connected to your online store, so you never have to deal with mismatched inventories.
- Consistent audits
It’s fundamental when keeping inventory on track is regularly auditing your stock. While your inventory management software will keep track of your stock, it’s important to make sure nothing’s flown under the radar, or that no mistakes were made.
The most effective way to do this varies on the size and type of business you run, but most businesses either do a full inventory at the end of the year or do a cyclical or rotating inventory spot-check which entails checking on specific items on a rotating schedule. The latter is typically the most effective, as inventory discrepancies are most likely to be found quickly and dealt with. If your inventory check is only once a year, it will be more difficult to track the mistake. traxk