When you start a small business, it’s a lot like jumping into the deep end of a pool, in the dark, without knowing what the pool is filled with. And with all your clothes on. Jokes aside, it can be overwhelming, surprising, confusing and, quite frankly, it comes with a steep learning curve that small business owners need to get a handle on quickly. This is especially true when it comes to inventory analysis.
The issues of inventory analysis are pretty complex but that doesn’t mean you can’t hit the ground running — or at least walking at a brisk pace. We’ve rounded together some of the best insights, advice and tips when it comes to analysis so you can get moving in the right direction while you learn the more complex ins and outs of analysis.
- Inventory Turnover — This is the most fundamental aspect of inventory analysis and it’s the one most people are already familiar with. Simply put, this means understanding how long it takes for your inventory to be exhausted and replenished before you begin the cycle again. Understanding inventory turnover lets you plan for the future and avoid issues like endless backorders.
- Customer Service Level (CSL) — Inventory management and customer service are absolutely linked in the business world. Want happy customers? Make sure they’re getting their products on time. This can involve some serious mathematics and, as a result, many companies choose to use a slightly simpler metric of measurement.
- Stock Outs — The math behind CSL can be a bit daunting to say the least. Figuring out stock outs can be a bit easier, but it also focuses on a problem within inventory control. That’s because stock outs represent how many times you create a backorder for a product and then how long it takes you to fill it. Of course, the goal of any business is to avoid this problem as much as possible, which makes this final metric a bit troublesome.
While most business owners have some idea of how they’ll handle their inventory at the start of their business, the real world challenges of management and organization can often make even the best laid plans little more than a pipe dream. That’s why understanding the foundations of inventory analysis become so important for your customers, your business and your bottom line.