Small business inventory management is a tricky endeavor, as most of you small business owners know. It is not the most attractive part of the job, but it needs to be done anyway since it plays such a crucial role in the success of your company.
Knowing this, you may have read tons of tips and strategies on the best and smartest ways to manage your inventory perfectly. But, are you still applying all of them? Sometimes we can be so lost in all the details of small business inventory management that we lose sight of the big picture. When this happens, it is best to just take a step back and go back to the basics.
So read on, analyze our tips on small business inventory management and ask yourself if you’re still employing all of these principles if you feel they apply to you.
1. Stay on Top of Market Trends
Depending on the type of goods you sell or materials you manufacture, demand for your products is not the same throughout the year. This has to do with seasonality and the fact that weather, holidays and events throughout the year affect the way consumers behave.
Therefore, you don’t want to keep too much stock of a product that is not currently selling. If you use a good forecasting tool for small business, then it probably has you covered in this regard (if not, you might consider updating it).
However, there are external factors that sometimes even the best sales forecasting app cannot predict. Maybe a new research came out or there was a statement by an influential person that is predictably going to reduce the call for a certain product and increase it for another. Take all these factors into account, and adjust accordingly.
2. Reassess Your Required Stock Quantities
Not defining ideal stock levels may be causing you to lose money. This could happen in many ways. The first way is by overstocking, and so you could be wasting storage space and resources in conditioning that are not actually needed since your stock values are way over the optimal value.
The second way you could be losing money is having too little stock, causing you to lose orders or even customers because you are failing to deliver your goods to them.
Another way you could be wasting your budget is by placing a lot of small orders for a certain product, instead of ordering a large batch right away and getting a discount from your vendor. Obviously, small business vendor management also plays a big role here. The best way to find a successful strategy is by discussing it with your suppliers and maintaining a good relationship with them.
A forecasting tool for small business also helps, of course. Accurate sales forecasts might tell you when the time of most demand occurs, so you can order big batches at the right time with some degree of safety.
3. Define Minimum Stock Levels
This point is similar to the previous one but is not quite the same. Before, we were talking about the optimal average stock quantities required to run your business successfully.
But obviously, the same stock number cannot always be maintained, because you will be shipping and selling goods to customers. This will cause your stocks to drop. At which point should you reorder more?
This will depend on the quantities you have in the first place, that may give you larger or smaller margins to work with. Typically, you should let the stocks drop reasonably before ordering again, in order to prevent making several small orders, as we’ve discussed earlier.
One great way to manage this without worrying too much is to have a reliable inventory control app. Recent inventory management systems allow you to define minimum stock quantities for each individual product and place new orders automatically once that threshold is reached.
When defining the minimum stock quantity, you should take reorder lead times into account. Lead time is usually the sum of the supply delay and the reordering delay. To be more precise, it considers not only the time it takes for the supplier to deliver the goods to you, but also the minimum time you must wait before placing a second order at the same supplier.
We will discuss some more basic thoughts on inventory management on part 2 of this article.