Inventory management, when done right, gives you the ability to have the right stock in the right quantity at the right time.
Inventory Management Definition
Inventory management takes an end to end approach compared to inventory control. Inventory control only deals with what you have in stock.
Inventory management will enable businesses to control and manage inventory from manufacturing to sale. Documents where a product came from, where it is now, and where it ended up to allow businesses to understand how, where, and why inventory is moving. Let’s begin learning about the inventory basics.
Retail Inventory Management
Retail is a broad term used to describe business-to-consumer selling.
Retail can be split into several areas:
Online: Online retail where the purchase takes place digitally via an eCommerce website or marketplace.
Offline: Offline retail is where a purchase is physical via brick-and-motor store or salesperson.
Multichannel: Where the purchase happens in multiple places, usually a combination of online websites and marketplaces.
Omnichannel: Where a company provides a unified experience for customers across all online and offline channels it sells on.
Wholesale, on the other hand, refers to business-to-business selling. This typically involves selling inventory, usually in bulk, directly to another business.
A company’s inventory needs to be managed according to the way their businesses operates, which can get very complicated when you add in multiple warehouses.
Why is inventory management important?
Inventory management is crucial for retailers, wholesalers, distributors, and manufacturers small and large. Inventory management will give you insights into your entire business. Inventory management has countless benefits; here are a few important ones:
Proper inventory management leads to what every company wants – repeat customers. You want your customers to keep coming back to you every time for their business needs. One way to make sure of that is to have everything they need every time they come. Sometimes, you might not have enough in stock, instead of turning them away make use of techniques such as dropshipping or backordering to keep them happy.
Having effective inventory management will allow you to predict accurately predict how much stock you will need to purchase in the future. Instead of planning just based on sales last month, use the analytical tools provided by a robust inventory software to stay ahead of the demand curve by analyzing sales over time, who bought it, revenue generated, and more. This visibility will help you set the correct reorder points and determining the proper safety stock.
Simply put, inventory is capital. For inventory to stop absorbing your working capital, you need to keep a high inventory turnover ratio to ensure your products aren’t spoiling or becoming obsolete. Optimize your inventory turnover ratio by using some inventory management techniques and keeping less of your slow-moving products, while increasing the stock of profitable products.
Having more inventory implies more carrying cost, more security and more labor. So using effective inventory management techniques can help in holding the right amount of stock, avoid wasting money on slow-moving products and efficiently put money into the areas of high return.
Empower your employees to help you manage your inventory efficiently. Training employees to use an inventory management software and other tools to help them make better use of their time, and it helps your business make better use of its resources, both human and technological.
Inventory Management Tips
Now that we have established why Inventory Management is important, let’s start taking a look at what good quality Inventory Management looks like in practice.
Set Min and Max
Inventory Min is the minimum qty to hold for a given product, and inventory max is the maximum qty to hold for a given product. Together, these two points ensure that there are no stock-outs. Use an inventory management system to alert you when you’re nearing, at, or below min levels so you can restock to the max to meet demand. Min and Max points do change over time, make sure to check at these levels throughout the year to make sure it makes sense and don’t be afraid to make adjustments as required.
There are two common removal strategies used in warehouses. The most popular is FIFO (First In and First Out). It is the principle that the oldest stock (first-in) gets sold first (first-out), not your newest stock. Use this strategy for non-perishable products.
FEFO (First Expired First Out). The stock that is going to be expiring the soonest (first-expired) will be sold first (first-out). This is commonly used with perishable products or any products that have an expiry date associated with it.
Even if you have a very efficient inventory management method, it is crucial you conduct periodic inspections to ensure your data is accurate. Most companies only count stock towards the end of the year, often in connection with tax season. This is a good practice, but auditing should happen more frequently. Companies are afraid that auditing will slow down their warehouse operationsor it is not feasible to audit every month. If that is the case, consider spot checking or cycle counting the more frequently sold items. It is easier to solve discrepancies if you audit every few weeks rather than every few months.
Find software that is robust enough to track orders and items through that business’ entire supply chain. It has features that are simple enough for a young company to master, but that can also be expanded to fit that same business increasingly complex needs year after year.
Brahmin Solutions is a robust inventory management system that fits into this category. Brahmin Solutions platform will help you oversee multiple locations, track shipments, automatically reorder products, print, and scan barcodes, convert units of measurement, use multi-currency features, and much more. Brahmin Solutions integrates with dozens of other business solutions, including Shopify, Stripe, and Magento to name a few. So you can share your inventory data across all of your other online platforms to ensure each one has accurate, up-to-date inventory quantities and values.
Shipping and Fulfillment
Shipping and fulfillment are essential aspects of inventory management. Shipstation or ShipTheory connects with your online channels or inventory management software. This software is designed to streamline the fulfillment process, and this software offers a vast number of integrations that allow you to synchronize your business with the most popular mail carriers.
Inventory management and cash flow management go hand in hand, which is why it’s vital to integrate accounting tools into your inventory management process. Quickbooks has features, integrations with POS, and payment features where you can manage inventory-related expenses.