For small businesses with an eye for consistent growth, every coin counts. The difference between success and failure boils down to coming up with cost-saving techniques that do not compromise product quality. A common misconception is that to outperform competitors, you’ve got to spend the least amount of money. What really matters is the ability to reduce production costs while still offering your product at the prevailing average market price. Smart entrepreneurs like to call it the “hidden hand.”
Small business inventory management is undoubtedly the area with the biggest money-saving potential. You can assemble the best marketing team, buy raw materials of the highest quality, or even offer the most pocket-friendly price on the market and still fail big due to poor inventory management. Your business must have zero-tolerance for dead stock. There must be no room for excesses. Neither should there be idle storage space. To keep these and many more money-hungry issues at bay, there are several steps that you can take.
Let’s cut to the chase. Here are 5 inventory management tips that can help you save money.
1. Know Your Par Level
Customers place orders but you happen to have depleted your stock. As a result, you inadvertently push them away, creating business for your competitor! That’s money lost, simply because you do not have the requested product in stock.
Par level refers to the minimum amount of stock you should have at any point in time. The aim is to maintain stock levels above a pre-set minimum. Although this level is best established through experience, the minimum stock should be sufficient to see you through the dry period – the time between order placement and delivery. A good inventory management software can help you establish your par level and promptly place orders, particularly when you’re selling different products.
2. Forecast Demand
Par levels go hand in hand with demand forecasts. To establish the amount of stock you need over the next week, month, or even year, you’ve got to have near-perfect forecasting skills. Of course, it’s impossible to perfectly predict demand, but there are several metrics that can be very useful on this. You can use trends in the market, cyclical events associated with a surge/drop in demand, sales from last year during the same month, or even your planned ad spend.
The best way to hone your forecasting skills is perhaps to invest in a good inventory management system. Otherwise, it would be really difficult to deduce trends from data stored manually. The best inventory management software today can present such data in easy-to-understand formats, such as bar charts and graphs.
3. Implement the First in First Out Rule
The first items to hit your store or warehouse should be the first to sell. This is an old but effective inventory management rule. So, why not sell the newest inventory first?
Older stock is generally more susceptible to wear and destruction. What’s more, quality often worsens with time. Sometimes changes in design can force you to hold products that are no longer in demand. We’re living in a world of trends where preferences can change without much of a notice. As such, older items may end up fetching much lower prices than they would in different circumstances.
To help you ship out old stock efficiently, you should aim to place items in the warehouse in the order of arrival, where the newest ones stay at the front, and relatively newer items take ‘backstage.’ Working with an inventory control software like DataQlick can help you to stay organized and keep track of inventory movement.
4. Consider Automation
Gone are the days of manually recording every transaction in pen and paper. Nowadays, small business owners make sales records and track shipments in just a few clicks. You do not need to hire multiple data entry clerks to do daily reconciliations. Instead, invest in a sales and inventory software that automatically keeps all relevant records.
Manual record keeping becomes even messier in the presence of multichannel management. If you sell across multiple storefronts such as Amazon, eBay, Shopify, and others, you need an inventory system that does most of the accounting for you, and in real time.
Automation is central to the success of most of the tips outlined here.
5. Consider Dropshipping
Most small businesses today have embraced dropshipping as a money-saving and more convenient way to manage inventory. Instead of carrying and shipping products yourself, why not leave that to the manufacturer or wholesaler?
Dropshipping can be an excellent way to avoid expenses associated with management of large warehouses or storage areas.
It’s time to ditch traditional inventory management in favor of modern cost-effective methods that can help your business grow much faster. Getting your hands on an inventory management system can be a good start.