Managing inventory is a crucial aspect of business operations. Many times, it is where profits or losses are made. Inventory work can be tedious, especially if you don’t use inventory management software solutions. Manually doing inventory can take longer and is likely to be more inaccurate compared to computer-assisted management.
Unfortunately, this is the reality for many SMBs out there. It was found that only about 18% of SMBs use inventory management tools. Many businesses still don’t take advantage of digitization. Many companies still lag. You don’t want to be a part of these statistics. So, if you want to improve your inventory management skills and knowledge, you have come to the right place for the basics. In this article, we’ll dish out tips you can put to work to optimize inventory management processes and your business.
Every business suffers from stock control and inventory management problems. One of them is “shrinkage,” which is the lack of stocks in an inventory due to theft by customers or employees, or staff and administrative errors. And, oftentimes, it is human error that leads to this predicament. That is why many businesses invest in digital tools to augment their professionals accurately and more conveniently manage their inventory. More specifically, inventory managers and warehouse personnel use digital inventory management solutions.
These tools help them optimize their current practice by having something to monitor the real-time and location of their items and the overall health of their stocks. Also, these support top inventory management activities, including forecasting (61.3%), warehouse management (50%), logistics (46.8%), and bolster their back-end technology (17.7%).
Source: StatistaDesigned by
However, getting a good solution is not the whole battle. It is even not half of it. Inventory managers and warehouse professionals need the right skills and understanding to perform well. So, let’s get on with some tips to help you improve your inventory management knowledge and stock control skills.
Your first focus should be checking on whether the delivered stock is exactly what you ordered from your supplier. Sometimes suppliers get stock orders incorrectly packed. In cases where they don’t manage their inventory and orders well, you too can get short stocked. This puts your sales and credibility at risk as well. In other cases, you might get more stock items than you actually wanted. Without checking, you wouldn’t be able to make necessary returns in time before the next order.
This is traditionally done manually. Also, this is what inbound quality inspectors are for. In larger organizations, there are dedicated departments just for this. However, if you belong to a small- or medium-sized business, sometimes you and other personnel need to do this yourselves. For example, the IT team should check all IT-related orders like crimps and routers; and truck drivers should inspect all transportation-related orders like new tires or the number of delivery boxes.
In this way, the check can be performed by the most knowledgeable people in your organization when it comes to their inventory. Also, keep in mind to check for the quality as well and not just the number of items. In restaurants, it is ultimately the chef ‘s job to check the ingredients that they use. For medical organizations, it’s the doctors or the medical technologists.
It is easier to place your stock wherever it fits. But the easy way isn’t always better, as this can make it harder to track the product. And if you have similar products with similar packaging (could differ in quantity or have unnoticeable difference), then, while in a hurry, you or your staff may make grave errors. So, it is best to have a clear system in place that everyone can easily learn. Also, it is best to have an organized stock room or warehouse.
Another reason for having a clear system is that you don’t want to rely on a single person to get you the stuff you need. You want your system to be learnable that in case something happens to your key personnel, your business can still operate.
Many times, entrepreneurs do their stock keeping their way. And as many creative people are, entrepreneurs can be messy and quite possessive of their working systems. They are “organized” in their ways and are very secretive when it comes to things they feel make them successful. These include how they keep their stocks.
So, if you feel that you maybe are this type of person, you should make the necessary efforts to optimize and convey your working system to your current and future staff. Guidelines and manuals should be clearly written and distributed. Also, these should become working protocols. This should be like second nature to your staff.
Large enterprises make use of radiofrequency identification or RFID to easily track, update, and monitor their stock items and levels. However, small and medium enterprises still rely on good old fashioned labels and not-so-trusty memories. So, it is best to make these labels clear. Also, you wouldn’t go wrong by registering these onto a spreadsheet or an inventory management platform.
For your physical stock room, you should always make it a point to have a clear label on your containers with corresponding product number, quantity, and basic description, including vendor name and other important details.
Labeling makes identifying the product much easier. Also, remember to update the labels as well as you go. This makes tracking easier as you are always able to know about the box’s contents with its exact quantity. This would help let you know when you should make your next batch or make your next order.
If you offer expired products, then you will be liable for hefty fines if the product gets delivered to the customers. So you need to keep track of the “best before dates” of each product. This way, you can clear the stock before it gets outdated. Many businesses clear their stock by offering them at lower prices.
Also, just to be on the safe side. Remember to check the expiry dates of outgoing orders before packing as well. This is the last line of defense. You don’t want to be put out of business, and, much worse, you don’t want to harm innocent, loyal customers.
Additionally, do you remember the previous tip? Expiration dates are important information that you should include in your labels and your database. If you have an inventory management platform solution, you can also set it to notify you or your staff when it is nearing the expiration dates of products. This is a great feature offered by top inventory management tools out there.
When you miss something like keying in important details, you are bound to compound your problems. Let’s face it. When doing stock keeping and documentation manually on a spreadsheet, we are bound to make a few mistakes here and there. Having a bad day can mess up records and operations. Every inventory movement costs effort, and money.
Thus, it is good to deal with issues immediately, like documenting the ebb and flow of items in real-time, as they go. Moreover, it is best to double or triple check each move, item, update, and order.
A bad case scenario of a compounded problem will be having ordered the wrong item and labeling it “correctly” and sending it late to its proper destination or, worse, to your end customer. Another one would be refusing orders for items that are still available. There are many things that could go wrong by just slipping for a quick second. So, don’t get caught slipping as young people say.
Every business has different peak times for sales. Different suppliers also have different lead times. Thus, if you want to keep your business going and want to escape out-of-stock situations, then you should be able to establish how long you can restock normally and forecast the amount of time the minimum stock level will get exhausted. Put simply, you should have an informed estimation of when and how much should you restock.
To do this well, you need to keep account of the market seasons and the fluctuating customer demands as well. You should ideally have a buffer amount to cover the amount of time you spend for restocking too. You should also keep in mind the stock levels of products with lesser demands to lower your purchasing and transportation costs. These are but some of the major considerations that you should make.
This is very hard to do well on pen and paper. Heck, it is hard to do on word processors and digital spreadsheets. However, forecasting is made easy by top inventory management platforms out there. So, if you are thinking of getting one for your organization, make a shortlist of those with forecasting abilities.
One of the biggest issue surfaces when businesses don’t document returns well. This does not only create inefficiencies with quality control. These also lead to inefficiencies in other aspects of business, like accounting, sales, and customer support. As many people know, inventory management is intertwined with other processes. However, some treat it as a siloed aspect of the process. This makes for very bad business.
So, like you have a system for storage and quality check, you should also have a process for returns. One way to do it is to separate all the returned items from others in your inventory. Firstly, this helps you avoid putting it back into circulation. Secondly, this gives you a chance to know and address the reasons for the returns. Thirdly, you can use this opportunity to create a personal and personalized experience with customers that returned your product.
Moreover, what you do is collate the number of instances for returns and their reasons. Then, you create a strategic plan on how to decrease these instances across your supply chain. This is very simple to say but hard to do. This doesn’t just involve inventory management personnel. This also involves customer representatives and even the marketing department. Sometimes, this also involves C-suite executives. However, for SMBs and single proprietorships, it is always just the entrepreneur.
We don’t have much space here to discuss this. However, as a food for thought, returned products do not only mean a mistake. They, too, can be an opportunity.
You should always keep track of your stock in real-time. In fact, you should have it on a dashboard. Why? This doesn’t just inform you of how many of what things you have in your care. This also informs you of how much opportunity is there to make for sales and profit. Yes, you are, in a sense sitting on something that can either be turned into revenue or losses.
So, in fact, the number of things in your inventory tells you something about the health of your business. Again, inventory management is intertwined with other aspects. It is a key piece of the puzzle. The physical number of stocks changes whenever you ship items or receive orders. It is related to purchasing and sales. Thus, monitoring shouldn’t be a siloed operation. It should be an integrated function of the whole business process.
You’d want it to be visible and easily quantifiable for it to be actionable and profitable. Thus, keeping track of it well is good practice. And, the best way to keep track of inventory levels in relation to procurement and sales in real-time is to adopt an inventory software with sales and order integrations. In this way, it will automatically keep you in the know, and you don’t have to enter everything manually.
Keeping track of inventories altogether is a time-consuming and exhausting task. So, you should keep your priority straight. Usually, 80% of demands are generated by only 20% of products. This is if your business, like many events, is an instantiation of the Pareto principle in effect where only a small factor (20%) accounts for most of the effects (80%). Of course, this is not a physical law. However, it is an effective principle to inform our judgments.
Inventory management professionals use this principle to inform them of which products to prioritize: which ones to put more effort into re-ordering, storing, checking, etc. If you follow it strictly, you’ll find the top 20% moving items and invest more effort into controlling their inventory as they provide you with the biggest return.
The Pareto principle is just a rule of thumb or a generalization. Often, in more particular settings, it simply isn’t spot on. So, if you can segmentize the ebb and flow of products in more detail than the general 80/20 rule of thumb, then the better off you are. This is why many inventory management professionals opt for a much more detailed (yet also general) framework: The ABC Analysis.
ABC analysis is used to prioritize which products are given more attention in inventory control using (1) value and (2) cardinality or the numbers of such products to estimate importance. The priority or importance is graded using three classes: A-B-C with A having the most value, B having the second-highest value, and C having the least value. Conversely, the ones with higher values are fewer in numbers than the ones with smaller values.
So, A items are fewer than B items yet are more valuable than B items. And, B items are more than A items, but less than C items, yet are more valuable than C items. Lastly, C items are the most numerous yet have values lesser than B items, and therefore, A items. Let us give you a brief hypothetical yet realistic example.
Consider a hypothetical fledgling supplement company that offers a set X of products. To keep it simple, let us say that they only have three different products conveniently called A, B, and C, which also conveniently have the properties described above. This is in the way were product A accounts for 20% of inventory but accounts for 80% of the total value a la Pareto principle. And, product B only accounts for 30% of the stocks in inventory yet accounts for only 15% of the total value, with C accounting for 50% of the inventory yet with the least percentage of total value at 5%.
This framework and example tell us a few things. First, all items are not equal in value. Second, there are those that move faster than others. Therefore, more control and priority should be given to items that provide more value and also move faster than others. So, in our example above, priority should be given first to product A, then to B, then to product C.
This “priority” translates to more attention and control like more frequent re-ordering, tighter security, more man-hours for quality inspection, and the likes. You invest more in items that give back more; invest in business areas with more returns. It is that simple in principle.
However, notice that this includes marketing considerations and sales-related aspects, as well as other factors such as the space you have, profitability, and the nature of the ingredients per se.
To further our example, let’s say that our fledgling supplements company manufactures its three products using twelve raw ingredients. However, four of them can’t be stored together in one room for safety reasons. What is the minimum number of rooms do you need? This might be an easy question for some conceptually.
But, add in the factor of profitability, current manufacturing speed, deadlines, the manpower you have, and the physical space available, then designing and managing space for inventory would be a tough problem. This is why it is best to prioritize first. Maybe you’d do just as well or better by just offering one product.
Today, it is best that you consider using automated solutions for inventory management and controlling of your stock levels. These solutions provide you with several tools for assisting you with proper and efficient management of your inventory and keeping you from time-consuming but important processes done manually. These can also be a big factor in reducing errors and increasing your productivity.
There are also cloud-based automated solutions for inventory management so that you are always available from wherever you are and whenever needed. These can have a considerable impact on your bottom line and allow you to grow faster.
One of such tools is Netsuite ERP. Its core features include a warehouse management module, vendor performance tracking, in-transit inventory tracking, and a full automation capability. What’s more, is that it has collaboration tools that you can use to work with other stakeholders and team members. Also, the vendor is kind enough to offer a free demo of this top software. You can try all its premium features at no cost when you sign up for NetSuite ERP free demo.
When you take a look at this recent supply chain management statistics article, you’ll find that supply chain management has been undergoing dramatic digitalization. Human skills and business intuition are getting scaffolded by digital tools and newer techniques such as analytics.
In fact, 38% of supply chain professionals state that the optimization of inventory management is one of the top drivers of their analytics initiatives. Although this is largely contained among large enterprises across different industries, SMBs are more poised now to adopt new digital improvements in the coming years. Thus, those who still prefer to go about managing their inventories without advanced tools are likely going to lag behind their respective markets and industries. You don’t want to be a part of such statistics.
So, if you have not started yet on digitization, here’s our article about digital transformation to help you familiarize yourself with it and get started.
However, do remember that tools can only be as good as the skills of the people that wield them. So, be sure to keep on improving your knowledge and skills, too, in this particular area. Furthermore, be sure to track larger supply chain management trends to keep yourself abreast of the bigger picture.
FinancesOnline is available for free for all business professionals interested in an efficient way to find top-notch SaaS solutions. We are able to keep our service free of charge thanks to cooperation with some of the vendors, who are willing to pay us for traffic and sales opportunities provided by our website. Please note, that FinancesOnline lists all vendors, we’re not limited only to the ones that pay us, and all software providers have an equal opportunity to get featured in our rankings and comparisons, win awards, gather user reviews, all in our effort to give you reliable advice that will enable you to make well-informed purchase decisions.