If you own a business that deals directly with handling and managing inventory, this just adds layers of stress to an already loaded plate as a business owner. The truth is, inventory management is all about juggling overlapping priorities, and learning how to do this well — much like owning a business itself.
Some of your top goals might include maximizing your profits, increasing inventory velocity, and decreasing on-hand inventory, all at the same time. But how do you manage inventory to meet all of these important goals?
This blog outlines a few smart tips any business owner should know.
1. What Are the Different Types of Inventory?
Inventory is a very broad term that encompasses a huge range of different materials, parts, and products. Many different companies hold and manage different amounts of inventory, too.
It’s important that you have a good knowledge of the different types of inventory out there, and what your business manages explicitly. The four different inventory categories are:
- Raw materials
- Unfinished products
- Finished goods
- Maintenance, repair, and operating supplies
Some businesses might store and manage all four of these categories, while some only concentrate on one. Know which category your inventory falls into and manage it accordingly.
Prioritize Vendor and Supplier Relationships
Your vendors are an integral part of your inventory management, and the overall success of your business. Without them, you wouldn’t have any inventory to manage. This is why it’s absolutely crucial to manage your relationship with them and maintain a good rapport.
When you use the services of a vendor you’re essentially entering a business partnership with them. Your business is just as important to them, as it is to you. Open, direct, and prompt lines of communication are an essential part of building a good relationship.
Here are some tips to maintain a lasting relationship:
- Concentrate on good communication
- Treat your vendors like they’re invaluable business partners
- Get to know their business and understand how their processes work
All of these tips will help you to form a business bond based on mutual respect and understanding of each other. If you treat your vendors well, you should receive the same treatment, too.
When You Manage Inventory, Expect the Unexpected
The business world is a fickle place, but nothing is more unpredictable than your customers, as well as the global supply chain which is always prone to drastic changes, sometimes overnight. When it comes to successful inventory management, it’s crucial to expect the unexpected and have a contingency plan to fall back on.
Some common inventory issues you might face include:
- A huge increase in consumer demand, leading to a stock shortage
- An increase in demand for a specific product, but no cash flow to purchase it
- You run out of warehouse space due to an increase in stock
- You purchase a large amount of inventory but it doesn’t sell as fast as you need it to
- Your warehouse management software malfunctions or you run out of inventory management tools
By keeping all of these possible scenarios top-of mind, you can build a backup plan should any of them come to fruition. Even if that means ordering a barcode scanner for every warehouse employee, so that you always have backup!
Make Inventory Management a Top Priority
Taking stock of your inventory and managing it correctly is vital to any successful business. You’ve probably spent large amounts of money on your inventory, so it needs to be a top priority, always.
Not only this, but you must store inventory by priority to ensure that it’s used in the right timeframe. This means that you should store fast-moving inventory in a way that makes it easier to move. With slower-moving inventory, store it further away from your loading dock.
It’s also imperative that you have a good understanding of the characteristics of your inventory, i.e. what it costs, its storage needs, minimum and maximum quantities, the size, etc. This gives you a clearer understanding of storing it by priority.
Implement the 80/20 Inventory Rule
Most businesses report that 20 percent of their actual stock generates 80 percent of their revenue. What this means is that 20 percent of their inventory is the most profitable, so it’s important to ensure you always have enough of this stock.
You don’t have to eliminate the other 80 percent of your inventory. You just need to ensure that you’re maximizing the full potential of the profitable 20 percent. Make sure to handle this 20 percent of your inventory with the utmost care.
Consistency is Key
Another integral part of great inventory management is storing, packing, and collating your stock with consistency. This means you need to unpack and store your inventory the exact same way, every time.
This might look like:
- Verifying the number of pallets you receive when new stock comes in
- Making a note of the boxes or storage keeping units it comes in
- Entering this information into your warehouse management system
- Designating where the inventory must go
By keeping this process consistent, you can reduce errors and discrepancies that can lead to wasted inventory that was never accounted for.
Always Order Restocks Yourself
It’s tempting to have your vendors order restocks for you if their inventory runs low. But this is something you want to avoid as a business owner. You need full control of your stock ordering and need to know exactly what needs ordering, and why.
Ordering restocks yourself helps you keep up with customer demand and gauge a better understanding of future sales, and products that perform the best. While it may seem like more work doing these restocks yourself, it can actually save you time in the long run. It ensures accurate management of your warehouse and the appropriate amount of stock according to customer demand, at all times.
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How you manage business inventory has a direct impact on the success of your business. In essence, you can think of your inventory as your business. Without it, you wouldn’t have much else. This is why streamlined inventory management should be your highest priority as a business owner.
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