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Inventory Management Guide for 2024


Inventory Management Guide for 2024

What could happen if a business does not have proper inventory management?


Without proper inventory management, a business might frequently run out of popular products. This leads to stockouts, where customer demand cannot be met. As a result, customers may turn to competitors to fulfill their needs, causing the business to lose sales and potentially long-term customers.


Understanding Inventory Management


Inventory management covers all the practices and systems that control how a business's products flow - from ordering to receiving, storing, tracking, and handling the finances of all the items a company sells.


Having a good handle on your inventory is crucial for any business selling products. You need a reliable system to avoid running out of stock and missing out on sales. On the flip side, having too much stock can tie up your resources and lead to losses from items going bad or becoming outdated. Plus, having excess unsold inventory can bump up your taxes. So, it's key to keep things simple with your inventory management to avoid these headaches and keep your business running smoothly.


In the same scenario, inventory management plays an important role in the big picture of supply chain management—they're connected but have their jobs. While supply chain management handles the smooth flow of goods from start to finish, inventory management zeros in on tracking, storing, and accounting for a company's stock accurately. This helps in making smart buying choices. For entrepreneurs and small businesses, it's easy to mix up inventory management and supply chain oversight, especially at the beginning. But as a company grows and duties get divided among team members or outsourced groups, knowing the distinctions is key.


Basic Inventory Management Steps


When you realize the management of your inventory is consuming too much of your daily schedule, it signals a need for a reassessment and overhaul. Effective inventory management does more than just enhance stock precision—it streamlines your entire day. Establishing robust procedures and processes not only frees up time for activities that grow your business but also makes your operations more efficient. Here’s how to develop an inventory management strategy that’s tailored to the specific demands of your company, incorporating the right mix of policies, controls, and technological tools.


1. Determine Methods for Sourcing and Storing Products

Your approach to sourcing and storing the items you sell has a significant impact on how you manage inventory. For businesses that keep all inventory on-premises, inventory control is an internal matter.

   

On the other hand, if your inventory is stored off-site in fulfillment centers, or if you rely on dropshipping suppliers, it's crucial to integrate your inventory management with their systems.


2. Strategize Inventory Storage

Efficient storage is pivotal for swift inventory management. Identify and label storage spaces in your facility, assigning products to specific locations, utilizing SKUs for easy organization.


3. Select Methods for Inventory Data Tracking

No matter the storage solution—be it self-storage, a fulfillment service, or dropshipping—it's essential to closely monitor inventory data through tools such as spreadsheets or comprehensive inventory management systems.


Important inventory data to track includes:

   

  • Internal and supplier-specific product identifiers (SKUs and UPCs)

  • Quantities on hand (QOH) for each item

  • Locations where products are stored or displayed

  • Supplier details like contact info, minimum orders, and delivery times

  • Costs of products from suppliers and any quantity discounts

  • Retail pricing, including standard and promotional rates


4. Implement an Internal SKU System

SKU stands for stock-keeping unit. Designing an in-house SKU system facilitates quick identification and tracking of inventory items, streamlining daily operations. These SKUs usually combine letters and numbers to convey crucial product details swiftly.


For example, TMP013-4101_EP is an internal SKU that’s coded to communicate specific information for an office supply store.


  • TMP: is the internal supplier code for the supplier Timepro

  • 013: is the internal category code for a multifunctional printer

  • 4: is the internal material code to direct display, handle, and packing

  • 101: ties to the last four digits of the supplier’s UPC to cross-check reorders and stock receipts

  • EP: is the internal brand code for Epson


5. Regularly Monitor Inventory Levels

Inventory-driven businesses typically do this thing called an audit once a year to keep the tax department happy. They compare what's actually on the shelves to what the records say is there. But when they find mistakes months later, it's like looking for a needle in a haystack.


That's where these quicker checks like cycle counts and spot checks come in handy. They catch those little errors before they blow up into big headaches.


  • Cycle Counts - You split up your inventory into chunks and count a bit each time on a rotating basis. Do it by supplier, category, or location—whatever floats your boat.

  • Spot Checks - Just checking a few items now and then helps catch sneaky errors in how things are stored or if something's gone missing.


6. Optimize Inventory Receipt and Forecasting

Forecasting is all about figuring out how much stuff you need in stock to meet future demand. It's like a puzzle with sales speed, upcoming deals, trends, and growth as pieces. 


The aim is to have just the right amount of goods to cover expected sales for a set time, like 15, 30, or 60 days. Knowing how fast products sell is important, and inventory systems with forecasting tools really help with ordering. 


Supplier delivery times are also a big deal in forecasting. Speedy suppliers mean less stock on hand, more frequent orders, and smoother cash flow. Slow suppliers or seasonal buys lead to bigger, less frequent purchases, tying up more cash in stock.


Getting your inventory shipments promptly is a big part of mastering inventory management. You can't sell what you haven't checked in and put on the shelves. So, prioritize those inventory receipts in your plan.


Accuracy in stock check-in is crucial. Mistakes here mess with your product data and can lead to ordering too much, false backorders, and having stock you can't move. And all of that affects your profits.


When you receive stock against your purchase order, take the time to open and inspect every case and container. Don't just trust the labels or packing slips - mistakes can happen there too.


Once you've got the stock, get it shelved in its spot quickly. For overflow or seasonal items, note temporary locations in your system for easy retrieval.


When restocking, think about using methods like "first in, first out" (FIFO) or "last in, first out" (LIFO). Usually, FIFO is the way to go - it puts the new stuff behind the old, so you sell the older items first. This is key for things like perishables and goods with expiration dates, such as cosmetics.


Long story short, keeping an eye on your inventory can help you save money, catch any funny business, and make that cash flow look sweet.


Final Thoughts


For startups and small business owners, diving into selling products without a solid inventory plan can spell trouble. Think about it - without proper inventory management, your business could struggle to keep up with customer needs, resulting in missed sales and customers flocking to rivals. Getting a grip on inventory is key to a smooth business operation, affecting everything from what's on your shelves to your financial well-being. It's all about smart sourcing, storage, tracking, and forecasting to strike that perfect balance between supply and demand, avoiding both shortages and excess stock.


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