When you started your business, you likely had goals and dreams of running the perfect business. It would have all the must-have items, excellent customer service and quick shipping, all wrapped up into one amazing package.
As your company has grown, you’ve found it’s been a fight to do more than just break even. Rest assured you’re not alone. Forty three percent of small businesses grapple with stagnant revenue, while 45 percent struggle with growing profits, according to the 2016 State of Small Business Report.
Though it seems like you’re doing everything right, using all the right social media and email marketing to get the word out about your products, those lackluster financials still haven’t been solved.
While all these marketing efforts are good, and absolutely necessary in today’s business world, perhaps you are looking to make improvements in the wrong places.
Have you taken a closer look at the heart of your business, your inventory? Are you still using manual inventory management methods like pen and paper or Excel spreadsheets? These methods are slow, prone to a lot of human error, inefficient, and won’t give you the accurate data you need to make solid business decisions for the future.
The good news is it’s not too late to implement an inventory tracking system. As you survey your current inventory control systems, here is an overview of steps you can take towards more effective inventory management.
1. Know your stock from your stuff
When you decide to keep an item in stock, you’ve made a commitment to your customers that you’ll have enough of that particular product in your warehouse for immediate delivery. A warehouse also has a lot of “stuff,” too, meaning everything else besides your most important inventory. We recommend you liquidate the stuff as much as possible and separate it from your stock.
So, how do you know your stock from your stuff? It’s all in the numbers. Check your annual “hit” list. This report will tell you the number of times each product was ordered by customers, transferred, or used in an assembly during the past 12 months, regardless of quantity. Each view or “hit” is a line item on an order. Whether the customer orders one piece or 1,000 pieces of a product, it is considered to be a single hit.
That’s where barcode inventory management can really put you ahead of the game. When you are looking through hand-written or manually keyed purchase reports, you won’t have very accurate records. Not to mention, it’ll waste a lot of time to look through piles of papers to find the information you need. Barcode inventory management systems offer real-time data, with little to no human error. So you’ll know, without a doubt, that your most popular items are just that.
Once you know which stock has gotten the most traction, the goal is to weed out the extra stuff and arrange your stock in such a way that’s easily accessible, making order fulfillment much more efficient and productive in your warehouse.
2. Liquidate Your Stuff
Once you have your stock and stuff separated, you need to get rid of that unwanted inventory. When you start this process, keep in mind that this inventory is not worth what you paid for it. It is worth what someone is willing to pay you for it. Do your best to get as much as you can for it, but anything above the cost of liquidation is “found money.”
Does your business have a plan for liquidation? If not, it’s time to create one. Here are some strategies to consider:
- Transfer the excess: If you have multiple locations, transfer extra items to another branch where the inventory is needed. Just because a product is considered “dead” in one location, doesn’t mean it won’t sell elsewhere. This is worth it, particularly when the cost to transport is much less than the value of the item.
- Return material to the vendor: Bottom line: some vendors are great with accepting returns; others consider it too expensive and won’t do it. A good rule of thumb is to negotiate returns right before you issue a large purchase order.
- Reduce prices: A customer might purchase a discontinued style of jeans, if the price is marked down enough as compared to a similar item from normal stock.
- Offer sales incentives: Offer bonuses (monetary or otherwise) to your sales staff to sell off that inventory you want to get rid of. You might be amazed at how fast the stuff sells when there’s a beneficial reason to push it.
- Let other suppliers know surplus stock is up to grabs: Search the internet for sites that specialize in inventory liquidation. You may even find places that focus on specific items, which is even more effective because there’s likely a large pool of potential buyers. Again, even though a certain product isn’t going over well in your market, it may be more relevant somewhere else.
3. Organize Your Inventory: Location, location, location. Systemizing your “most hit” inventory items significantly minimizes the cost of filling orders. Use common sense, like a layout that stores an entire product line in one area, with similar products nearby. Take the lead of retailers. When you shop for groceries, you expect all the boxes of cereal to be in the same aisle or all the same designer to be displayed in the same area. This is exactly the type of logical warehouse organization necessary so employees can efficiently fill orders.
4. Get your inventory straight
You know your inventory flow the best, so you need to decide if a continuous review or periodic review system will work. If you’re not sure, here are the facts about each:
- Continuous Review Systems: You purchase the same quantity of items with each order. Monitoring inventory levels is a must, and whenever the quantity of an item drops below a set level, you would then replenish your stock.
- Periodic Review: You order products at the same time each period, determining how many items need ordered based on quantity levels at the end of each period. There are also no set reorder levels for this type of system.
5. Make cycle counts…count
Successful inventory management will most likely include a cycle counting program. Here are some factors to consider to begin effective cycle counting:
- Counting frequency: Find out how many cycle counts your employees can do annually as well as the effects of counting on other facts of your warehouse operations such as manufacturing, receiving, and the delivery processes.
- Counting plan: Next, decide whether to divide inventory between location in the warehouse or by category, item, or value.
- Counting expert: It’s important to put a trusted person in charge of running a tight cycle counting system. Having an in-house specialist who knows the ins and outs of the process will help your business reap the benefits of your counting strategy.
The right automated inventory management system is a must-have. If you think that purchasing new hardware and software is more than you can afford right now, think again. Inventory management suppliers can tailor systems to your needs and budget. Even better, most companies that make the up-front investment say it pays for itself, through increased efficiencies and productivity, within the first few months of use.Business & Finance Articles on Business 2 Community