Whether you’re running a brick-and-mortar shop or a full-fledged e-commerce business, inventory management is one of the most important but tedious tasks. If you slip up on supervising the acquisition, storage and usage of your products, your business will suffer dire consequences.
A study called “Revealing the Hidden Costs of Poor Inventory Management” found that over 46 per cent of retailers mark down their products because they overbought or got the wrong items. And although markdowns may entice customers to buy your products, you’re still offering them at a loss.
Apart from overstocking, common inventory management issues that business owners face include:
- Spoilage — Food isn’t the only item that comes with an expiry date, some cosmetics, motor oil, paint and more also have a predetermined shelf life. Poor handling can cause these items to be exposed to the elements and expire earlier than expected, leaving customers with an inferior and sometimes dangerous, product. Food waste, or food that don’t get consumed at all, costs the Australian economy over $20 billion every year. Over 7.3 million tonnes of food gets wasted annually, too. Don’t let your business become part of the problem.
- Outdated systems — Some businesses may still be using manual methods when it comes to inventory management, like using literal stacks of paper to monitor everything. Even using spreadsheets is considered archaic now, since there are faster and more efficient cloud-based inventory management systems in the market.
- Obsolete inventory — There may be items that you still have in stock but can’t use or sell anymore. Common reasons for these are they’re out of style, season, or just straight-up obsolete. These are called “deadstock” items, and they’re the result of poor sales and inventory reporting.
- Inaccurate forecasts — Deadstock and spoilage are caused by inaccurate forecasts. There are a variety of problems stemming from these, too, like not being able to have enough items to meet customer demands.
How to Streamline Your Inventory Management
An out-of-control inventory system can cause management headaches and cuts to your bottom line. Reduce your risk for stress with a streamlined inventory management.
- Have a first-in, first-out (FIFO) policy — First-in, first-out means that stock that gets into your longspan racking first must also be sold first, even if it is tempting to provide your latest offerings. This concept is often applied to perishable items, like food and cosmetics. However, it can also apply to non-perishables, too. You want to sell your first products out before they wear out or go out of style or season. This prevents markdown headaches in the future.
- Find better vendors — If your vendor is causing you inventory headaches, like late shipments or offering out-of-season products, or even inferior items, drop them. When finding another one, do your research about their company to see if they offer good-quality products. Check their reviews to see what their business partners are saying about their products and services. If possible, stick with the same supplier for one type of product. Adding more vendors to the mix just keeps your supply chain unnecessarily complex.
- Automate your processes — Manual methods and spreadsheets are way too slow and prone to human error. Make your inventory management duties faster and more efficient by investing in an automated system. Applications, like Oracle NetSuite, Caspio, ERPAG and Orderhive, all offer automated inventory management. This means that all of your orders are recorded, calculated and analysed automatically. They also provide a dashboard with a real-time view of your inventory and orders with vendors. They’re also cloud-based, which means they operate from an external provider’s servers. You can access and modify your orders from anywhere and from any device with a web browser and the right login credentials.
- Train your employees with the best practices — Even if you have an automated inventory management system in place, poorly-trained employees can still ruin it. Teach your inventory managers the best practices of the job, like calculating how much stock to order according to demand, conducting systematic audits, handling fragile products correctly and training other workers the right practices as well.
Inventory management is one of the most complicated and important parts of a business, especially if you’re in the retail industry. Problems like spoilage, deadstock items and inaccurate forecasts can severely impact your bottom line. With automation, proper vendors, a FIFO policy and a well-trained staff, you’ll have an efficient and fool-proof inventory management system. It may take a lot of money and training to achieve this, but it’s worth it when you don’t have to worry about spoiled or out-of-season-goods ever again.