On part 1 of this article, we discussed some basic concepts concerning small business inventory management. The idea was to summarize the pillars that make a business successful in this field, which can mean an overall success of the company.
We discussed some topics like keeping up with market trends and changes, controlling your stock quantities and defining minimum stock levels. Now, we’ll talk about other important aspects of small business inventory management, starting with number 4.
4. Implement a FIFO Methodology
This might seem obvious, but it is far from it. In fact, FIFO (First In, First Out) is only one approach from the many you can use. There are other valid options, like LIFO (Last In, First Out) and WAC (Weighted Average Cost). We won’t discuss these in detail, but they usually make more sense from an accounting point of view than from a stock management one.
FIFO, as the name implies, means that the first goods to arrive at your warehouse are the first to be sold. In other words, you will always sell the oldest goods first. This is arguably the best stock rotation system, and also the most systematic.
The most obvious case to implement FIFO is when you are selling perishable goods that come with an expiration date or ones that may become degraded over time. If you were using LIFO in this case, you would always sell the newest products, while the old ones would end up going past the expiration date while still in the warehouse, meaning they could no longer be sold. This would mean lost money for your business.
5. Update Your Inventory Tracking System
If you were to follow only one tip from this list, perhaps this would be the one. The reason for this is that having a modern inventory management software can completely change your methodology.
We’ve already seen in part 1 some of the useful functionalities an inventory control app can have. For example, you may set a threshold for stock levels of each individual product. When the stock goes below that threshold, a new order is automatically placed for that product.
Another situation where a modern inventory management software is recommended, if not obligatory, is when you are running a multi-channel business.
In multi-channel retailing, your company is making sales using multiple mediums, like the Internet, a mobile app, telephone ordering and physical stores. Imagine trying to manage stocks using, for example, Excel spreadsheets, and you’ll quickly realize that this would be an impossible feat.
With an updated inventory management system, however, this becomes a different story. Information about sales and stocks from all these mediums can be integrated and updated in real time. This is also a great way to see where most of your profits are coming from and redefining your company’s strategy adequately.
One of the inventory management software is DataQlick. It integrates your inventory management platform with your accounting software in order to do everything we’ve been talking about. It also makes sales forecasts, so you can plan properly for the several times of the year.
Furthermore, DataQlick also has a mobile inventory app. With it, you can check inventory data and manage sales orders with your smartphone, from anywhere on the planet. It even features a POS app, so, as you see, it can make your inventory management days much easier.
6. Optimize Your Inventory with ABC Analysis
You’ve probably heard of the ABC analysis, and you may be implementing it already, but if we’re talking about basic inventory management practices, we have to mention it.
The ABC analysis works much like it sounds. You divide your inventory into 3 categories of products: A-type, B-type, and C-type.
The A-items will usually account for about only 20% of your total stocks, but for 80% of the revenue your company is bringing in. This is an example of Pareto’s law, which remarkably can be applied in many different fields.
B-items will account for a medium portion of both your inventory and sales, while C-items will make up most of your inventory, but only a tiny portion of your total revenue.
Why is this important? Well, if you know which products are the bread and butter of your business, then you can’t afford anything to go wrong with them. The minimum stock threshold before you reorder should be carefully defined, and inspections should be more frequent. In short, every good inventory management practice applies doubly for A-items.
Conclusion
We hope you enjoyed our 2-piece article about small business inventory management practices and tips. If you follow these, then you’re on the right track!
