Inventory management is an important part of all companies, and small businesses are no exception. It may seem like a secondary aspect, but if it is treated as such and not enough attention is dedicated to it, it may bring a business to ruin.
This is why a lot can be said about small business inventory management, and that is even more so nowadays. Due to the technological changes our world has undergone, most businesses are expanding online and having to deal with input from a lot of different channels at the same time.
This makes it more difficult for store owners to manage inventories properly and adequately. Fortunately, there are some tools and tips you can use to make your job easier, such as investing in a good inventory management system.
In this article, we will cover three tips to help you handle your small business inventory management more efficiently.
1. Use a First In, First out (FIFO) Approach
Generally, you should sell your products in the same product as you ordered them, or, more accurately, as they arrived. This is especially true for edible or consumable goods, as you can imagine. If you leave the oldest products in your warehouse for last, they may not be in perfect condition by the time you sell them, or they will be nearing their expiration date. By doing this, you will be providing an inferior service, and your customers won’t be too happy about this, which will ultimately hurt your business.
Take some measures to make sure you are sending your goods away in the same order that they came. A simple trick for a warehouse is to add new products from the back so that the oldest ones are always removed from the front. A good inventory management system can also help you keep track of batches and arrival dates so that you aren’t overburdened with this.
2. Do Stock Audits
Your inventory management system might be excellent in keeping track of orders, but sometimes it is still very important to check your stocks to confirm the actual numbers match the data in the inventory management software.
If there is a mismatch, it can help you identify problems. Maybe there was an issue with your vendor or with the transportation of the products. Small business vendor management is another crucial part of a company, and you should make sure that your suppliers are meeting your demands.
Stock audits are important not only to identify potential missing items but also damaged or spoiled products. It might be a sign that the vendor is not delivering goods of the highest quality, or that maybe the warehouse has problems with conditioning. Either way, damaged goods are not in a condition to be sold to your customers, so you should identify the source of these problems and address them as soon as possible so you make sure you are not losing money.
3. Remember the ABC Analysis
Of course, depending on the size of your company, and the size and number of your warehouses, it may be difficult or even impossible to perform audits to all of your products.
Fortunately, there is a rule that many companies use that makes small business inventory management easier. It is based on the principle that not all your products are made equal, and some are more important than others as far as profits are concerned. This rule is called the ABC analysis, and it has this name because it divides your products into three categories, which, unsurprisingly, are called A, B, and C.
Products in the A category are the ones with the highest consumption value, typically around 80%, and in general, they only account for about 20% of total stocks. This follows the Pareto principle, or 80/20 rule, that you may have heard about already. B-products have an intermediate consumption value and account for 30% of stocks, and C-products have the lowest consumption value, with stock percentages close to 50%.
What’s important about this analysis is that you recognize that some products have more value than others, and should receive treatment accordingly. You cannot afford to run out of your bread-and-butter, which are the A products. So what you should do is to have a tighter control over stocks for A-products over B and C products. Perform audits on these more frequently and make sure they are conditioned properly.
Also, with the aid of a good inventory management system, keep a close eye on stock levels and re-order weekly, if not daily. Your customers will thank you for always delivering their favorite product on time and with high quality standards.