What Are the Basics of Inventory Management?
Whether you run an e-commerce business or a brick-and-mortar operation, if you stock physical products, it’s crucial for you to stay on top of your inventory at all times. Often, this involves tracking which items are going out, what’s still in stock and which items may be out of date. All of these elements are essential aspects of the inventory-management process.
Effective management of your inventory helps your business’ bottom line and also ensures you’re providing the best customer experience possible by knowing you can give consumers what they want when they want it. In today’s competitive marketplace, you can’t afford to ignore inventory management. Here are some simple yet important things to keep in mind to more effectively manage your store inventory and make the process easier on yourself.
Healthy Relationships With Suppliers
When your suppliers are familiar with your needs, they’re more capable of helping you facilitate changes to your inventory. They can also better anticipate what you might need on a regular basis and what emerging products might be ones you want to add to your inventory. When you have effective two-way communication with suppliers, it can be easier to correct issues like the need for replacements when you receive damaged or defective products. Resolving these common issues is much easier when you’re employing good supplier-management skills.
A healthy relationship begins with good communication. Set a standard to keep your suppliers informed of upcoming changes so they can better plan to respond to your shifting needs. This can prevent unexpected shortages and help you maintain stock. You should also ask suppliers to let you know when deliveries or restocking activities are running behind schedule so you can make adjustments to marketing campaigns and promotions if necessary. If you need to, consider staffing a dedicated account representative to handle communications with your suppliers. This an effective way of avoiding having important details fall between the cracks.
Par Levels and Timely Ordering
One of the best ways to avoid running out of a product is to set par levels for each item in your inventory. The par level is the minimum quantity of an item you need to have on hand to meet customer demand, plus a few extras in case there’s an unexpected surge in demand. Once an item in your store inventory reaches or drops below this par quantity, you need to place an order for it immediately so you can restock. This ensures you’re always providing customers with the products they want and also makes the ordering process more streamlined because you have a defined quantity and baseline to guide your stocking.
You can opt to use software or physical inventory forms to manage this process, but software is generally more streamlined and mostly eliminates the need to take stock as often. If you run a large operation, software is also your best bet because the automation saves quite a bit of time in tracking dozens of products. Regardless of which option you choose, it’s up to you to make decisions regarding par levels based on upcoming sales, seasonal dips and peaks in business or emerging consumer trends.
Risk Management and Problem Solving
Your inventory-management processes won’t always run as smoothly as you want, no matter how much you’ve refined them. You’re bound to run into issues — and that’s a normal part of business that you can anticipate to a degree. Instead of waiting for these mishaps to occur, why not prepare for them in advance? Forming contingency plans for certain situations makes your response to them more streamlined if they do occur.
You may make an error when calculating your inventory on paper, which could then cause you to run out of a product. There’s a chance your supplier might run out of an item unexpectedly. You could even face the discontinuation of a popular product. Regardless of the issue, having a contingency plan can help mitigate the problem so your operation continues to run efficiently. Try to anticipate some of these more common issues that could potentially interrupt your business, and then form a plan of action. Make sure your staff is familiar with the plan, particularly those members who are directly involved with ordering, inventory and warehousing.
Regular Audits of Your Inventory
Even if you’re using software, it’s imperative to perform regular audits on your inventory to ensure all the numbers match up and the software is functioning as it should. At its most basic, an audit compares product quantities listed in your records with the number of products you physically count and have on hand. When you find that those numbers differ, this can expose possible issues with software, shipping, ordering, warehousing or product handling. If you run a brick-and-mortar operation, you should also conduct this with your equipment inventory. There are a few ways to perform an audit.
Counting your physical inventory is one technique. This simple approach involves carefully counting products and tallying them at the end of the year. Then, you’ll look for discrepancies in your reports from the software and the number of products you actually counted.
You could also cycle count your inventory, which means only counting one product or type of product each month. You then cycle through all products throughout the year. Finally, you could spot-check items randomly to look for inconsistencies. Consider doing this with top-selling items.
Dropshipping as an Option
Today, an inventory-management checklist wouldn’t be complete without mentioning dropshipping. This is the process of handing the job of shipping products off to a supplier. This means you’re no longer responsible for storing your inventory or sending it out to customers upon purchase; you’re primarily focusing on processing orders. This method has become very popular in recent years, especially because online shopping is now so common.
Ask your supplier if it provides dropshipping as a service. If you’re hesitant about investing in this process, think about what it could potentially save you in storage and fulfillment — you may no longer need to rent warehouse space or maintain equipment like forklifts. You’ll need to weigh these options to determine if this type of shipping is right for your business. For example, if you manufacture your own products on-site, dropshipping doesn’t make sense. But if you order stock from a variety of different suppliers, using dropshipping with a few of them can simplify ordering for your company.