A good inventory management system is very important for small businesses. It lets you avoid “dead stocks” and identifies which and how much stock to order at what time.
In order to effectively manage your cash flow and resources, it’s crucial that you understand all 4 of the inventory management elements.
1. Keep an effective inventory tracking system
An inventory record system keeps track of the quantity of the goods or materials you have on hand. The type of system can depend on the kind of business you have, but it’s important to ensure that your inventory management software system is easy-to-use and robust. Here are some of them:
- Keep an inventory ledger
- Have a point-of-sale (POS) system
- Get barcode labels
2. Analyze and review your inventory history
Go over your inventory history, and you should be able to spot trends and patterns where some products sell more during a certain time or period. Being able to know these allows you to predict which products are in demand at which time of the year. This prevents “dead stocks” and avoids running out of in-demand products.
3. Analyze product sales
Study your products and be able to identify the following types:
- Products with high-profit margins but unpredictable sales
- Products with low-profit margins but stable and high-frequency sales
According to experts, you should pay closer attention to products with low-profit margins but consistent sales. This business mindset has been proven true for many small and large businesses. For instance, the successful ‘kanto’ fried chicken seller keeps his profits low to ensure that the customers keep coming back. Even the owner of the ‘bodega’ grocery attests that he’d rather have small profits to keep the sales coming in.
4. Identify items to repurchase and audit.
You should now have a solid understanding of your product and inventory to be able to choose which products to buy and when. If you’re still unsure, you can run a periodic audit to test your analysis. You can do:
- A full year-end inventory – This can be tedious but worth it. Manually go through your entire full inventory and check if the numbers match your inventor records and sales.
- Cycle counting – If you find doing a one-time full audit tedious, you can make it easier by scheduling them quarterly, monthly, or per product.
- Spot checks – If you start noticing discrepancies between the numbers in your inventory and record, do a random spot check. Pick a product and check the reported stock, sales, and actual stock to see if they all match. If you find any missing stock, dig deeper because that would mean lost resources and profit for you. It’s best to spot-check items that are your most expensive or in-demand products because these are the ones that have a big impact on your business.
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