Let’s be real… running out of inventory is detrimental to your business: you cannot sell from an empty shelf. The opposite extreme is having excess inventory, because your money will be tied to slow-moving, obsolete or expired shelf-life products.
Many small businesses tend to rely on gut feeling when it comes to managing their inventory:
“I know better than anyone else how much need”
“Inventory systems are too expensive for a small retail like mine”
“my business is so complex… there is no way a computer can do it better”
As a result, they have no reliable measurements to know if they have healthy inventory levels
There is a way to achieve the right balance between too much and not enough: Here are five suggestions:
Track How Much You Have, Use and Buy: You need accurate inventory records. This is your foundation for your purchasing decisions. There are many tools (relatively inexpensive) that can automate your ordering and sale transactions, such as Dynamics for Financials. I recommend to stay away from Excel spreadsheets because it is difficult to consolidate information and does not save you much time.
Categorize your Merchandise: A typical inventory consists of expensive and inexpensive items. Some items, (like foods) deteriorate quickly. This means that you have to treat each product category differently, that in order to minimize losses in your inventory, you have to make smaller, more frequent orders of expensive items and larger, less frequent quantities of the un-expensive ones.
Forecast Accurately: I know most people don’t like math, but using statistics and price history can help you make the right decisions. Consider using reliable forecasting tools for your future demand, taking into consideration not only the usage history but also how much the demand changes each week or month.
Purchase the Right Quantity: Ordering quantities to cover a fixed period, disregarding which items impact more your money tied in inventory is not a good idea. This may sound complicated but a good inventory management system will do this for you and allows more time for your buyer-planner to focus on anticipating statistical distortions caused by future demand changes.
Automate: There are ways to achieve these suggestions without investing large amounts of money and human resources if you apply the right tool.
So let’s break a few paradigms:
- Managing over 2000 items based on gut feelings: There are so many aspects
involved in sound inventory management that it is virtually impossible for an
individual to ponder all of them using a calculator or a spreadsheet.
- Inventory management systems are too costly: There are new inventory
management tools in the market that can perform these functions at a reasonable
Inventory cost is not relevant to my business: Unless you have the tools
to quantify you stock-outs as well as your carrying cost of inventory you cannot make