Inventory management Inventory

Effective strategies to keeping your inventory management painless

Inventory management is a crucial function of any business owner. It can be challenging to stay on top of, but with some effective strategies you can cut down time and money

November 13, 2021

Frankie Rodriguez - Cheif Revenue Officer

Inventory management is a crucial function of any business owner. It can be challenging to stay on top of, but with some effective strategies you can cut down on the time and money spent managing your inventory. It's no secret that keeping track of inventory can be challenging. There are many moving parts to the process, each with their own demand for attention. As a result, inventory management often becomes an afterthought or gets put on the back burner. This article provides strategies for avoiding common inventory management mistakes, creating efficiencies within existing systems, and specific tools to help streamline your operations.

Keep a well stocked inventory without breaking the bank

It is easy to think that the key to running a business is keeping inventories low. This book will show that it isn't so. The cost of carrying inventory is not the main factor in determining profits. The trick to succeeding in business is not buying when you can't afford it, but knowing when you can. But if keeping inventory levels low isn't important, what is? The answer can be found by looking at how inventory comes into existence. There are three ways to acquire inventory: purchase it, make it, or grow it (raise it). There are advantages and disadvantages to each method. A business makes money by getting resources for less than they are worth; the resources might be raw materials, labor, machinery, office space, or anything else needed to make or sell products. The trick is buying resources cheaply enough that even after paying all the costs of making and selling the products, there will be something left over for profits. That's where inventory management comes in; reducing inventories reduces costs, and hence raises profits. But there are two different kinds of inventory management: rational and stupid. And businesses would do better focusing on the latter than on the former.

Be realistic about how much money you can spend on inventory

When you run a business, or plan to start one, you will be told you need more inventory. And when you have more inventory, you will be told you need more. In fact, if you make anything people want and then sell it for a profit, you don't need more inventory. You need less. You want to carry only as much as you can sell profitably right now, and maybe a few days of safety stock to handle expected demand during slow periods. There is a formula for figuring out how much safety stock to carry. It is based on the concept of "order cycle time." In a typical small business, the order cycle time is about four weeks: if your customers all place their orders four weeks apart from each other. In this case, you have enough safety stock if the amount of inventory on hand at any given time is half of what will be sold during the order cycle time. This formula doesn't apply to everything that's sold by a business. For example, a restaurant needs enough food on hand to serve its customers - but not so much that it goes bad before they come in again. So the key to managing inventory is knowing what kind of product you're selling and how long it lasts.

Start with an obsessively organized, highly detailed inventory checklist

In the long run, any physical inventory needs to be balanced: you need to produce and consume things in roughly equal quantities. If you buy a bunch of screws and then throw them away, or if you throw away a bunch of screws and then buy them back, you're not actually getting anywhere. The same is true for mental inventory. If every time you make a list of what you own it ends up being incomplete, or if every time you make a list of your goals it turns out that some of them aren't really goals after all, or if every time you write down what you need to do today it seems that some items have been mysteriously crossed off without your knowledge, then even though there may be times when this sort of incomplete information is useful, in the long run it's going to cause more problems than it solves. It's better to start with a checklist that is too long than one that is too short. If something gets on your list that doesn't belong there, sooner or later someone will notice and take it off again. But if something gets left off your list entirely, no one will ever know anything is missing. The checklist was an instrument of control, which is why it appealed to me. I liked having a physical list of everything in my life and knowing that I could cross things out when they were no longer there. Every time you moved or threw something away, you'd update your list. The list was a concrete representation of the state of your life: up-to-date and physically present in front of you.

  • Things you can count easily: socks, pens, shoes, books.
  • Things that go in drawers: keys, coins, stamps, checks.
  • Things that go in boxes: batteries, light bulbs, paper clips.
  • Things you paint with: paintbrushes (a dozen), rollers (three)

Keep the right amount of stock to avoid financial distress but not so much that your space is overflowing with stuff.

The key to inventory management is to keep just enough inventory on hand to avoid disaster but not so much that you're wasting storage space. This is especially important with stock-in-trade, which can't be moved out of the storeroom without an order; if you try to hold it all in the storeroom, you risk running out of room for other things. When you buy stock for resale, try not to put it directly into the storeroom; this wastes space and makes it hard to see what you have. Instead, put it in a separate room outside the storeroom (but still part of the warehouse) and use the shelves there as your display area. Then when customers buy stuff, they can immediately take it off your hands. You'll have more orders at any time, but each order will be smaller, so you'll move more slowly toward buying more stuff. The best place for your off-storeroom inventory is along one wall of your warehouse. That way, if anything runs short, you can check the wall without moving any other items around.

One of the essential functions of a good inventory management strategy is knowing how much product you can afford to order at once and realizing where you will have to cut corners if you need even more. If you buy too much, you are sitting on the dead stock. The stock of any one item is only worth having if it can be sold quickly when there are orders for it, otherwise, you are paying interest on it. If you buy too little, however, your customers may be unhappy with the service you provide. If they know that there is a shortage of the color of shirt that they want in the size that they want, they may go elsewhere or put off their purchase until next season or next year.

Orda has tools to easily manage order inventory and share it with customers in your own mobile ordering app.

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