Many feel a strong aversion to the word “inventory”. They associate it with extreme organization, repetitive product counting and ambiguous information among other problems. Unfortunately, inventory management has earned this bad reputation because of those who don’t understand it and didn’t manage it properly from the start. The purpose of this article is to break down certain myths. We will also give you 5 tips for managing your inventory in a simple and efficient way. This will increase the chances of success of your online store in the short term.
Why is inventory management essential for any online store?
Having a correct inventory management shows you the real value of your products, which is money waiting to generate value. Managing this number can help the growth of your store or make you go bankrupt. Its that simple.
Good inventory management will help you have more cash
No more product spoilage. Correct inventory management will minimize your losses if you’re selling products with an expiration date. Even if they don’t, products of any kind always suffer some type of deterioration.
No more inventory losses. Losses can happen for a variety of reasons, like going out of style, robbery, etc. With correct inventory management these losses will diminish drastically.
Less storing costs. Storing products is a variable cost. This means that the more assets you have that aren’t being sold, the more expensive the storing costs will be.
More cash flow into your company. Simple. Correct inventory management will allow your online store to rapidly sell products and achieve a greater cash influx. Cash always helps, right?
5 tips and techniques for an efficient inventory management
First-In First-Out (FIFO). The “First-in, First-out” principle is very important in inventory management. It has been in the toolbox of experts for many years thanks to its simplicity and efficiency. It means that older products (First-in) are sold first (First-out) and not necessarily the last you have in stock. This is especially important for products with an expiration date, but it is also useful for products without one. Even though these products can be sold at any time, they will still suffer some kind of degradation the more time you have them in stock. This means more storage costs or less profit margin.
Minimum inventory levels. A good technique for inventory management starts with managing the minimum inventory levels you need to keep the store up and running. The minimum amount of products is an essential metric for this inventory management technique. It does require a bit of analysis and research but it’s very useful. When your stock falls under a default level, you’ll know it’s time to order more of that product.
Contingency planning. There are many problems related to inventory management. These problems can paralyze any company that’s not ready: Suppliers not delivering stock on time, excess of demand, lack of demand, and the list goes on. It’s not an issue of problems happening or not, the thing is when they’re going to happen. Find out where the risks are and set up a contingency plan for every situation that needs it.
Regular audits. Many services offer the option of inventory management, but the numbers they show don’t always represent the reality of your stock. It is necessary then to coordinate a periodical inventory revision to keep electronic records updated.
Physical inventory counting. Even though it’s a common practice in many stores, most of them only do it once a year. This makes the decision making about inventory more difficult. A periodical inventory counting can be a good alternative for online stores in need of maintaining an updated record.
Point of reference. There are stores that need to manage an abundance of products as well as regular inventory issues. A good practice for those stores is to choose specific products to count and compare with an existing record. If there’s a discrepancy you can then start doing a more exhaustive count.
Periodical counting. Some stores use periodical counting cycles to audit their products. This means consistently counting over a period of time instead of a single audit at the end of the year. Specific product counting is done on a monthly, weekly or daily basis to find out if the electronic records are up to date. There are different methods to determine what elements to audit, but usually products of greater value and importance to the store will be counted more frequently.
Dropshipping can be a viable alternative. A dropshipping strategy can be interesting if it is supported by the supplier. Instead of managing the inventory internally, the supplier does it for you sending products directly to the client every time a sale is done on your website. Your inventory is zero.
Inventory control is a vital process for the proper functioning of any online store. Follow these tips and start bringing your inventory management to the next level. Improve your stock management, and you’ll obtain greater income and be able to grow your business.