Simple Ways to Optimize Inventory Management in Small Business
At first glance, inventory management may seem so insignificant along with strategic business management processes. But an experienced manager will note that inventory management is, first and foremost, the foundation on which the strength of the retail business depends.
The basic principles that determine the effectiveness of the management of the material inventory of an enterprise are deceptively simple:
- Availability of sufficient stock to meet demand;
- There shouldn’t be involved too much capital;
- Unreasonable management of the assortment of the enterprise will at least lead to lost sales, and, in addition, may destroy customer loyalty.
Nevertheless, experience has shown that many enterprises do not integrate the management of the company's product range into the strategic small business development plan. In pursuit of the achievement of financial and economic indicators (for profit), companies improve service, invest enormous resources in expanding infrastructure, maximally optimize the work of personnel and so on. But stimulating the growth of the company in this way only creates the illusion of development. This is like to repair the facade, at a time when the foundation is crumbling. Such a model of inventory management has serious negative consequences for the long-term prospects of the company.
What for Inventory Management is?
Management of the inventory refers to the calculation of standards, control over actual volumes, and timely replenishment of stocks. Well-established IM helps achieve the following competitive advantages:
- Reduction of expenses arising from a lack of raw materials.
- Reducing the excess.
- Increased turnover rate.
- Reducing the cost of the company for the storage of goods and materials.
- Optimization of taxation.
- Reduction of losses due to damage or deterioration of reserves.
Important Tips you should follow to Succeed
Most retailers are just beginning to think about the process of inventory management in logistics, as in other industries. There comes an understanding of the need to closely monitor and improve their methods of inventory management.
1. Enterprise Assortment Management
Take a look at your business through the eyes of a customer who comes to the store to purchase the desired product. In 70% of cases, a potential buyer purposefully comes for a certain brand of goods. In the event that the product is not available — this is a missed sale, besides, it makes an emotional impression on your potential buyers. The absence of the claimed product is unlikely to be replaced by the charming smile of a consultant or the possibility of contactless (NFC) payment. Thus, the lack of goods in stock does not only affect sales, but it also damages the brand and reputation.
2. Be afraid of the lack of Information
One of the main problems facing retailers is the lack of available data to make informed business decisions. Many small businesses base their procurement process on forecasts and rough sales data for the past week. Despite this, the use of sales information is a good starting point, this method is completely uncompetitive. Inventory management by forecasting takes the company a few steps back. On the market, there are methods for accurate calculation of the required inventory level.
3. Regularly analyze the costs of the enterprise
If you neglect to periodically review your expenses, you miss the opportunity to increase profits. Using analytics will prompt the appropriateness of costs and help clarify the current financial situation. Here are some examples of inventory management reports that will work well for your small business:
- The dynamics of the company's stocks (in monetary terms).Analysis of lost sales in 6 weeks, 52 weeks.Dynamics of excess stocks for 6 weeks, for 52 weeks. Analysis of assortment management;
- Analysis of the reliability of supply stocks;
- Management of stocks and seasons;
The Must in Inventory Management
- Stocks of raw materials and materials with a high cost should be minimal;
- Insurance stocks should be sufficient to fulfill the operational orders of key customers. It can be recommended to limit the number of key customers;
- The creation of surplus stocks is justified if there is confidence that they will be in demand and the rise in prices for them will allow compensating the cost of credit resources.
How to Conduct Inventory Management Correctly?
There are several simple and understandable rules of prosperous management of inventory:
Analysis of present demand
If consumers buy 50 units in a store, it’s pointless to buy 200 units. Therefore, you need to accurately analyze the level of current demand for products. Based on the analysis performed, the company will be able to purchase exactly the number of stocks that it will be able to sell before the future purchase.
The calculation of safety stock
As a part of the calculation, it is necessary to take into account all factors affecting the implementation. For example, this may be seasonal demand, consumer behavior, etc. For example, on average, consumers buy 1,000 units per month. This is the average bar. However, in theory, demand can rise to 1,200 units. The optimal safety stock will be 200 units. You can do such calculations online with the ManageMartsoftware and keep them all in the cloud-based. The calculation can be carried out on the basis of these strategies: an increase in profits, a decrease in the volume of purchases, a decrease in storage costs, and the satisfaction of consumer needs.
Analysis of surplus and deficit
This procedure establishes the current position. For example, representatives of the enterprise may make a system error: the purchase of excess production volumes. The analysis will provide a reduction in probable risks.
Product line optimization
Inevitably should be determined products with chaotic or stable demand.
All information is supplied to management in the form of statements. Timely identification of negative trends allows you to quickly stabilize production, avoiding significant losses. We hope these smart tips will help you build inventory management properly!