Needless to say, large businesses have led the way in innovative inventory management, from “Just-In-Time” theory popularized in Japan in the 1980’s to today’s on-demand cloud processing.
The reason that managing inventory is so important is that there is an actual opportunity cost associated with it, and it can make or break your company if you have too much or too little. Let’s look at basic inventory management techniques, explain what to look for in good inventory management software, and go over some best practices for managing inventory.
So what exactly is inventory management? It is a critical component of your product supply-chain management, and it can have a significant effect on your bottom line. By properly managing your inventory you can have the right products in the right quantity on hand and avoid products being out of stock and funds being tied up in excess stock. You can also ensure your products are sold in time to avoid spoilage or obsolescence, or spending too much money on stock that’s taking up space in a warehouse or stockroom.
We’ve mentioned Just-In-Time management, as listed in the graph above. There are several inventory methods that you can use to track and analyze your production and sales system. ABC Analysis and cross-docking are two of the most common, but there are many solutions that might fit your business better.
ABC Analysis: This involves dividing products into categories based on sales, to organize items based on their impact, so you increase production of fast moving products, and reduce it for those that don’t move as quickly. The 80/20 rule, or 80 percent of sales come from 20 percent of products, is often highly accurate, and suggests that focusing your marketing efforts and inventory optimization on those products can boost revenue.
Use the FIFO (First-In-First-Out) Accounting Method: For tax reasons, there are instances where you would want to use the inverse of FIFO, or LIFO (Last-In-Last-Out), but in general, FIFO will be your inventory management method of choice. Goods should be sold in the same chronological order as they were purchased or created.
Drop Shipping/Consignment: Products are either sent directly from your manufacturing site to your retailers or consignment shops, or directly to customers, to reduce the costs of storage and shipping. You need very good inventory management for this, so you don’t lose track of shipments or items, but it can reduce costs.
Square, Inc. has put together a list of the qualities that one should look for in a good inventory management software package:
- Reduce costs, improve cash flow, and boost your business’s bottom line
- Keep track of your inventory in real time
- Help you forecast demand
- Prevent product and production shortages
- Prevent excess stock and too many raw materials
- Allow for easy inventory analysis on any device
- Be accessible right from your retail point-of-sale (POS) system
- Optimize warehouse organization and precious employee time
- Offer quick and painless bar code scanning to speed up intake
- Allow for multi-location management, tracking inventory across several locations or warehouses
A couple of software packages that you may want to look at include Finale Inventory, who will give you a 14-day test run of the product. Another is TradeGecko, which also offers a free trial, and looks to have a package that is priced for small businesses. Give these methods a try, and look into software to simplify inventory, and take it to its max.
