Typically, any business deals with at least two to three inventory types to effectively fulfill its business mission. Inventory is a key part of any business regardless of size. Managing inventory across the board becomes another responsibility of a business owner. Improperly managed inventory is a disaster waiting to happen. As a result, businesses will lose money and accumulate debts.
Business cannot be kept on a freewheel, run on its own, and expected to return a sumptuous return. What you might have at the end of the day is a huge pile of administrative costs with initial capital nowhere to be found. Not necessarily because of pilfering, but because wastages are bound to be high when there is no leash on inventory.
Before we dive completely into how to manage your inventory, let’s see what inventory management is.
What is inventory management?
Inventory management is the oversight and control of the flow of goods or materials into and out of a business. As the word implies, management involves monitoring every bit and piece of inventory. This involves tracking each item and activity and making informed decisions about cost, quantity in stock, supply orders, etc.
Businesses aim to meet customers’ needs and make profit at minimal cost. Having proper inventory management helps a business know the quantity of goods in hand for sale and prevent sudden stockout issues.
Business credibility lies in how resources are managed and inventory is included. When proper management is not given to a business’ inventory, an accounting mismatch is a possibility. Here are some issues that may arise from managing your inventory as you should;
Bookkeeping Sayings And Quotes
1. Stockouts and loss
When you don’t have a way of checking the state of items in your warehouse or store, frequent stockouts will be imminent and this could lead to a loss of sales and customers. Overall, it becomes a deficit for the business at the end of the accounting year.
If you disappoint customers frequently with the unavailability of products, you can end up with all your buyers leaving your brand for another alternative.
2. Capital holding
Not tracking your inventory makes it oblivious to the amount of goods you have unsold. If you have this information gap, you might order more supplies than you can sell immediately. In such cases, you need to increase administrative expenses in order to handle the excess products in stock.
3. Products will become obsolete
Although this depends on the industry your product belongs to. Some products have a long shelf life while some don’t. As a result, if a product stays too long in inventory, it risks going out of fashion and becoming obsolete. This can leave the business with a loss or reduced profits when clearing up old products.
4. Reduced profits
When stockouts and increased costs become excessive, the business loses money. Stockouts hinder sales and a lack of sales leaves businesses with zero profit.
5 Types Of Inventory Used By Small Businesses
Tips For Managing Inventory
1. Keep Track of Inventory Levels
At every point, you should know how much of your customers’ demands you can meet with the level of products in your inventory. The task seems burdensome when you have many things to monitor. That is why your best bet is to automate inventory management.
Kashbuk provides business owners with an automated reminder when they run out of stock of a product. The bookkeeping app also saves you a ton of work entering each product manually into the inventory. Once you sell an item, it automatically records it in the inventory.
Monitoring your inventory levels helps prevent stockouts and excess costs incurred when trying to speed up supply orders. This is when you could have properly planned to make an order to replenish inventory.
2. Categorize your inventory
An advantage of keeping your inventory in categories is that it becomes easier to monitor what goes on in each section. From raw goods to finished products, it becomes quicker to notice any abnormalities and treat them immediately. Categorizing your inventory is not limited to inventory types. You can also categorize it by product type, size, or demand.
With this, you can identify issues quickly especially when you are involved directly in the production of your products. You know what stage experiences delay and seek ways to fix that. You can also make informed decisions when looking at categorized inventory because you know what products are selling fast and slow-moving.
3. Optimize your warehouse
Usually when a business stores products, they are kept in a warehouse. Managing inventory items is vital. The rule you need for warehouse goods is FIFO (first in first out). There are times when you will find new goods in stock paired with older ones in stock. What you need to do is ensure that the older goods are shipped out first before the new ones.
This is so you won’t have expired or damaged items due to shelf life. When you optimize your storehouse, you are able to reduce costs, maximize space, and reduce the risk of loss and damage.
4. Set a reorder point
When you have a threshold for when you need to be notified that an item is running out of stock, managing your inventory becomes easier. Issues like stockouts or loss of customers due to item unavailability will be done with.
A reorder point is the minimum quantity of an item that must remain in stock to trigger a new supply order. With this in place, you can be assured that you have enough to meet customers’ demands as well as have enough time to get new supplies.
