If you find that inventory-related tasks take up a large portion of each day, it’s probably time for a review and a reboot. Good inventory management doesn’t just increase inventory accuracy, it makes your day more efficient. Once you have good processes and procedures in place, you will soon find more time for business development activities.
Here’s a seven-step approach to creating an inventory management plan with procedures, controls, and tools tailored to your unique business needs.
1. Define methods for supplying and storing products
How you source and store the different products you sell determines how you manage your inventory. If you store all products in your own facility, your inventory controls and processes are handled internally.
However, if you store goods externally in fulfillment centers or vendor warehouses, or use drop-shipment vendors, you need to tie inventory processes and data tools to their systems.
2. Decide how to track inventory data
Whether you stock the goods yourself, use a fulfillment partner, or focus on drop-shipping vendors, keeping an eye on inventory data is essential for inventory management. For this, spreadsheets and inventory management systems are valuable tools.
Inventory data you’ll want to record and track typically includes:
- Internal product numbers and suppliers: product numbers are called Stock Keeping Units (SKUs) and many suppliers also use Universal Product Codes (UPCs)
- Quantities available (QOH): the current quantity of stock per item in your store or establishment
- Product storage location: assigned areas where items are stored or displayed
- Supplier Information: contact information, order minimums, case quantities and delivery times – referred to as lead times
- Product costs: wholesale costs by supplier and quantity discounts
- Retail Price: current and promotional sale prices of goods
You can use a spreadsheet for simple inventory tracking needs, such as for less than 100 items. However, integrated inventory management systems such as Square POS, Lightspeed, or Clover are very cost effective and make it easier for small businesses to manage inventory from day one.
These systems streamline customer orders, inventory tracking, vendor data, purchase orders, and inventory receipts into a single system. Plus, most seamlessly connect to retail point-of-sale (POS) systems, online sales channels, distribution centers and drop-shipping partners for on-time inventory updates. real.
3. Create an internal SKU system
Creating an internal product SKU system is useful for quickly identifying and tracking products during day-to-day operations. SKUs typically use a combination of letters and numbers that are arranged to provide key details about an item at a glance.
For instance, BW066-3201_RASP is an internal SKU coded to communicate information specific to a housewares company.
- pc: is the internal vendor code of the BentleyWare vendor
- 066: is the internal category code for a dinner plate
- 3: is the internal material code for plastic to direct display, handling and packaging
- 201: links to the last four digits of the supplier’s UPC to cross-check replenishments and stock receipts
- GRATED: is the internal color code of Raspberry
So, with a glance at the SKU, employees know exactly what an item is and other key details such as where it is stored and how it is displayed or shipped.
4. Organize inventory storage areas
Having a place for everything and everything in its place makes all your inventory-related tasks quick and efficient. If you manage inventory in your own facility or store, first organize and identify storage areas, such as racks, shelves, and bins, then assign each product to a specific area.
This is where internal SKUs come in handy. You can easily connect certain areas of the store, stockroom or warehouse using your SKU’s vendor or category codes.
5. Use forecasts to order inventory
Forecasting involves predicting how much inventory you will need to meet future demand. Naturally, this involves many factors, such as product sales speed, upcoming promotions, market trends, seasonality, and business growth, to name a few.
The goal of forecasting is to have just enough inventory available to cover expected sales for a prescribed period of time, such as 15, 30, or 60 days. Understanding product selling velocity is essential for forecasting and inventory management systems, which greatly facilitates forecasting tools built into purchase orders.
Understanding supplier lead times also plays a key role in forecasting. Reliable suppliers that ship quickly allow you to stock fewer items and order more often, which helps with cash flow. With slower shipping suppliers or seasonal purchases, you will have fewer and larger purchases, tying up more cash in inventory.
6. Configure inventory receiving procedures
Receiving inventory shipments quickly is another key part of learning inventory management. You may not sell or ship inventory that is not recorded and properly shelved or displayed. It is therefore wise to make receiving inventory a priority in your inventory management plan.
Inventory recording must also be accurate, as errors directly impact your product QOH data and lead to overorders, false back orders, and unsold inventory. All of this has an impact on your bottom line.
The best procedure is to receive stock against your purchase order, and to open and check all cartons and containers to make sure everything is correct. Don’t rely on box labels and packing slips from vendors, as their staff can also make mistakes.
After receipt, the stock must be quickly put away in the space assigned to it. Or, if it’s excess inventory or seasonal merchandise, note the temporary locations in your inventory management system so you can find them when needed.
When shelving or stocking new inventory, you can use methods such as “last in, first out” (LIFO) or “first in, first out” (FIFO). Generally, it’s a good idea to use the FIFO method, which stores new products behind older inventory, so you sell older products first. This is especially important with perishable foods and products with expiration dates, such as cosmetics.
7. Keep track of inventory levels
Most inventory-focused businesses perform an annual inventory, called an audit, for tax purposes. This compares a physical count of all goods in stock to the quantity of stock on hand (QOH) shown in the data records. However, discrepancies found in annual counts are almost impossible to trace and explain as it can take months after the errors have occurred.
This is where intermediate counts such as cycle counts and spot checks fill in the gaps. These help you find and correct small inventory inaccuracies before they become big problems.
- Number of cycles: Divide your entire inventory into sections that are counted on a rotating schedule. Cycle counts can be run by vendor, item category, stock location, or whatever suits your operation.
- Checkpoints: Periodic counts of a few items help spot random errors in storage, ordering, storage, or theft losses.
Simply put, when in doubt, count. Close monitoring of inventory is key to improving your cash flow, spotting theft or other loss issues, and increasing that bottom line.