Managing your inventory is probably something that gets your blood boiling. It’s a tedious task with real business consequences if managed incorrectly. Bad inventory management can lead to slower order fulfillment, which extends your cash flow cycle of money going out of your account and money coming back in. It can also saddle you with many other costs, such as higher interest rates from vendors and the inability to spend money on operational costs as your money is tied up in inventory. However, it’s not just money that is impacted. Customer service is often affected with customers having to wait for a product or go somewhere else to find it. This can lead to a staffing increase, as it takes longer to find products and longer to deal with those customers affected by the stock issues. And don’t forget the regulatory and environmental risks that you may have with obsolete inventory that needs to disposed of.
But fear not! Inventory management doesn’t have to be costly or complicated. It just has to be organized. Here are five common mistakes entrepreneurs make with their inventory, and how to solve them.
1. Too Much Inventory
Overspending on inventory is easy. But it’s not a real way to offset the fear of being out-of-stock for customers. While buying volume can reduce the cost per unit, it also means that your cash flow is restricted until those items have been purchased. It’s not just the cost of the item itself. The cost of storage or warehousing can also be high – property, electricity, keeping things the right temperature, etc. And if you don’t sell it at the right point in time, you could end up marking the product down and discounting to get rid of it.
So how do you fix it? Start to make predictions of how much supply you’ll actually need and when. The best thing to do is look at previous sales. Look at it month by month to spot any trends or seasonality. Identify the less obvious patterns as well as the month-end spikes. If you’re just starting out and don’t have data to look at, start investigating your competitors.
2. Inaccurate Inventory Tracking
Once you have the stock, you need to be able to track it. Opportunities for miscounting stock are everywhere. From receiving the shipment, fulfilling orders or even staff use. It’s also important to account for breakages or damaged goods.
An electronic inventory system is the best way to get on top of your inventory management. If it’s linked to your point-of-sale (POS) software system even better. You can then use the system to complete random spot checks and make sure the inventory count is correct and you have enough stock.
3. Lack of Priorities
Tracking your inventory lets you know your customer favourites and which products and services generate the most revenue. It could be that the product that takes the most time and effort to order isn’t as popular as an item that is a breeze to click and order.
So how do you fit it? Generally 80% of your profits will come from 20% of your products, so analyze your sales, inventory and processes. Once you do this, then focus on the items that create the biggest return on investment.
4. Allowing Your Vendor to Restock Products
It can be tempting to allow vendors to stock and reorder products, after all it saves you time and staff costs. However, if you don’t monitor vendor’s orders properly it can result in excess inventory or inventory loss due to miscounting or paperwork. It can also result in products not being rotated on the shelves, creating expired inventory.
So how do you fix it? Keep control of your own inventory. Make sure that you are the one that knows what is coming in and going out of your business and that you are not relying on a third-party to affect your profits.
5. Have a Back Up Plan
Imagine taking all this time to create a system, only for it to be lost. Think about instances where your server fails or if your computer is stolen. These are real concerns that should be addressed.
The first rule for all business data is to always have a backup. That can be on a USB, a Dropbox account or an external hard drive.. Just make sure your have something! You don’t want all that hard work going to waste.