Inventory management is a component of supply chain management that involves tracking how your goods enter and leave the warehouse. A well-formed inventory management strategy allows you to keep up with how much stock you have on hand, how much you need to order, what dates your merchandise ship on, and much more. Managing inventory is integral to the foundation of any product-based business. Without it, operations could not succeed.
By practicing successful inventory management, you gain detailed insight into the most minute operations of your business. You won’t have to stress about overstocking goods or miscalculating stock amounts when you have a firm grasp on every aspect of your warehouse.
Here are a few details you’ll become familiar with as you learn more about managing your inventory:
Product landed Cost
Supplier lead times
Economic order quantities (EOQ)
This overarching business technique is fundamental for product-based industries, but each company handles it differently. Some of the factors listed above may become more vital than others, depending on what you manufacture and ship. Understanding these nuances — and the particular needs of your business — will help you get the most benefits from tracking your inventory.
Inventory management is essential for helping your company grow and thrive. Too often, a business runs into ruin and failure because of small errors like poor inventory management that they could have easily avoided. The most unfortunate thing is that if you don’t put these proven tips and practices into place from the start, it can be incredibly difficult to remedy any mistakes that may come from doing business without them.
For example, holding inventory for too long can halt the flow of money. Stunted money flow can destroy your business, giving you little hope to build it up again. Products that don’t move off the shelves occupy precious space and can leave you with limited room for the rest of your goods. Alternately, picking and packing the wrong orders can result in unhappy customers. These buyers may then leave unpleasant reviews about your company, which hurts your reputation.
Many companies still power their supply chains using manual labor, which can increase the risk of error regarding inventory checks. Recording an inaccurate quantity can lead to a business ordering more supplies when it’s not necessary, costing them time and money. Similarly, a company may postpone re-ordering because they think they have enough of an item, but it’s actually out of stock. Human mistakes are unavoidable and can cost you substantially over time.
Issues of miscalculated quantities aren’t always due to simple mistakes — sometimes, they occur because of employee theft. If you have a clear and accessible way to look back on your stock history reports, you’ll locate discrepancies more quickly. You can draw informed conclusions about whether inconsistencies are due to simple inattention or intentional dishonesty. Fortunately, our three proven tips can boost your business smarts and put you ahead of the game, ensuring success and proper business management overall.
One of the best strategies for effective inventory management is to start using a cloud-based inventory management software system. It’s even better if your system comes with barcode scanning. Cloud-based inventory management systems allow businesses to pay for excellent and necessary features that they can upgrade when needed as their company grows. What’s more, a software system with barcode scanning offers a certain level of accuracy that is not easily attainable when managing inventory manually.
You enjoy numerous perks when using cloud-enabled barcode scanning:
Easier shipments: Shipping becomes smoother on both ends when you can record your product data and trace orders from beginning to end. If incidents occur while sending out goods, you and your customers can benefit from a detailed stock history report. Showing that you’re responsible with handling your merchandise makes you more trustworthy to current and potential buyers.
Faster stock transfers: Initiate and record stock transfers with your barcode scanner and never miss out on documenting another shipment again. If your business spans multiple locations, expediting this feature is crucial to meeting administrative duties and ensuring products arrive at the correct warehouses. Enter your stock transfer, and it’ll immediately go into the cloud, accessible for all workers who manage this task.
More accurate picking: Scan all your orders into the system with your barcode scanner, and they’ll automatically update to show their new status. A precise order picking solution prevents costly inaccuracies, and precision is essential to this stage of fulfillment. Picking and packing the right items every time enhances customer satisfaction and reduces your number of returns.
Most cloud-based systems are obtained by paying a single subscription fee that renews monthly or yearly. Finale Inventory works on a month-to-month basis for low commitment — no need to devote yourself to a six- or 12-month plan. Cloud-based programs include certain features, like auto purchasing and replenishment of popular products, multi-warehouse data and management, Lot ID tracking, serial number tracking, barcode inventory solutions, and much more.
Many programs also allow for integration with other applications, meaning you can handle inventory accounting, shipping details, and point-of-sale systems all in one location. In short, a cloud-based inventory management software system will remove all the headaches from inventory management. A high-quality software system can make inventory data simple, quick, and easily accessible from any location and device, whether it is your phone, laptop, or tablet. The system also automatically backs up all your data so nothing is lost, and software updates ensure you always have the latest version ready to go. Additionally, you don’t have to worry about IT costs when you’re working with your own database system. Using a personalized program gives you greater control over your business, allowing you to troubleshoot inventory issues and make changes to your software parameters without going through multiple parties.
Auditing is one of the best ways to ensure that inventory and numbers match up. Whether you are working with a software system or handling the numbers yourself, you should always double- and triple-check things to ensure that inventory stock and recorded figures are on point. If they aren’t, this could signify lost items, miscalculations, or misplaced money, which could lead to other issues. You have a few simple and effective methods for auditing:
Physical inventory: A physical inventory audit means you count all your inventory at one time. Most companies using this method count their inventory when the fiscal year ends, tying this even to accounting and income tax processes. Of course, a physical inventory audit can be time-consuming, tedious, and prone to mistakes.
Cycle counting: An alternative to doing a complete physical inventory audit is to use cycle counting. With this method, companies never have to count all their inventory at once because they count in cycles during the year. You can do cycle counting by auditing a different product regularly, whether daily, weekly, or monthly, to make sure you don’t miss anything. You determine how often the cycles come around so that you have a system that works best for your specific business and products.
Spot checking: Spot checking pairs well with a full physical inventory audit once per year. To mitigate issues with physical inventory, you can spot-check throughout the year. It’s effortless and only involves selecting one particular product, counting it, and comparing this number to the product quantity in your records. You don’t have to do it on a schedule — it’s most useful as a supplemental activity to physical inventory. The best products to spot check are those in high demand with customers.
One of my main responsibilities is helping businesses enhance and maximize their inventory practices in a way that’s manageable throughout their entire business. For those businesses looking to make their inventory management practices more efficient, here are five steps on how to manage inventory more effectively.
1. Clearly laid out processes
When there aren’t clear processes, things can get out of order — and out of hand — quickly. So, one of the most important things you can do to ensure successful inventory management is to clearly map out all processes within your organization. When each process is laid out clearly, there is no question on what to do next.
An inventory management system is a perfect example of having clearly outlined processes. With an inventory management system, you are able to outline every step of the sales and purchasing process — from Quote to Invoice, as well as Purchase Order through Receipt and Invoicing.
2. Proper means of identification for items
With processes laid out, the next step to successful inventory management is having a proper way to identify and keep track of items.
Surprisingly, there are a lot of businesses keeping track of their inventory with Excel spreadsheets or other spreadsheet applications. When your business requires more complex means of identification such as lot or serial number control, spreadsheets don’t provide the proper means of identification for your items, nor do spreadsheets require users to enter all the necessary information.
For instance, Excel doesn’t require pertinent inventory tracking information to be entered when processing transactions, which means users can forget to add required information because they were never prompted. This method is prone to human error, as the person posting the transaction may not enter in the correct data.
However, using an inventory management software allows businesses to track things such as multiple units of measure for an item, as opposed to having to track multiple items as “breaks” of different units (box, each, pack, etc.). The system gives you the ability to see the total on hand quantities from one window which you can sell or purchase in alternate units of measure.
Additionally with inventory management software, you are able to have unique identifiers such as lot and serial numbers as well. Being able to identify all the different ways to pack your item, whether in receiving or selling, enables users to quickly see how much is actually available for sale because it’s all under the same product ID, as opposed to having to view product information in multiple places.
3. Timely posting of inventory transactions
This is definitely the case when using cost methods that rely on transaction dates, such as First-In-First-Out (FIFO) and Last-In-First-Out (LIFO). If you’re closing your books on a regular basis, you’ll also need timely posting of transactions. By posting transactions in a timely manner, inventory costs are kept as accurate as possible.
You’ll also want accurate numbers when selling items to your customers or creating work orders to build assemblies. All of the numbers for On Hand and Available for Sale are based on posted transactions. When you get behind in posting, those numbers will not be accurate.
With inventory management software, however, your business can rely on real-time inventory information.
4. Internal controls
While this isn’t always an option for small businesses, if there are enough users to split out responsibilities, ensure that there aren’t mixed duties.
To give you an example, optimally, the person running your accounts payable shouldn’t be the same person running your receivables. As a business, it’s always good to have someone else involved before the final posting to ensure all the necessary information is there and verified.
Using an inventory management system with specific user permissions can give you the internal controls you need to ensure proper business practices. This gives you the ability to, do things like block certain people from seeing product cost information.
5. Accuracy with 3rd party integrations
Your business may use, or plan to use, features for your growing business such as electronic data interchange (EDI) and web store services. Therefore, it is crucial to consider the integration of your inventory system with the services your business will be needing.
Some systems integrate directly with EDI providers, as well as integrate directly with web store platforms. You will want to make sure the inventory management system you decide to use can work with each “piece of the puzzle”. Integration is key in making sure lines of communication are open, which will ensure accuracy when inventory is obtained.
Putting it all together
So we discussed five components of successful inventory management: clearly laid out processes, proper means of identification for items, timely posting of transactions, internal controls, and accuracy with 3rd party integrations. However, there are plenty of other ways to fine-tune and adjust your inventory practices for efficient inventory management.
Spreadsheets are the primary platforms for businesses that still handle their inventories manually. Companies that use spreadsheets are more likely to be small to medium-sized, as they don’t yet have a pressing need for more sophisticated systems. However, spreadsheets can still be time-consuming and ineffective compared to cloud-based systems.
With an inventory management software solution such as Cloud based inventory management system, you can implement new ways to handle actions like these:
Serial number tracking: Serial numbers are a necessity for many businesses that sell variations of similar products. However, tracking serial numbers isn’t always easy for paper-based systems. You may have better luck turning to software to handle these intricate codes. By using an application, you can be certain that the products you send out are accurate and will reach their intended destination.
Location expansion: If your company grows and adds new locations, you’ll need to upgrade your capabilities to match the additional warehouses and stock quantities. A cloud-based system allows everyone to access the appropriate data from their tablet or computer without wasting time with paper documents.
Data centralization: It is much more convenient for workers to log onto a company-wide cloud system than send paper spreadsheets back and forth, at risk of mixing up documents. Forgetting even one sheet can drastically alter your stock reports, ending up with everyone on a different page.
Additionally, software solutions are becoming attractive in an increasingly technological world. When the difference between speed and accuracy can mean falling behind or shooting ahead of competitors, a tech-based answer can eliminate your worries.