Managing inventory can be a complex task, particularly if you’re a business dealing with multiple products or locations. However, getting this process right is crucial for avoiding losses through misplaced stock, ensuring customer satisfaction, and maintaining operations.
With the advent of technology and smart strategies, organizing and tracking inventory has become more manageable than ever. So you might be asking how to keep track of inventory when there’s a lot coming in and going out? The answer is simple. All you’ll need to do is develop a strategy.
From detailed record-keeping to intelligent forecasting, effective inventory management boosts your business efficiency and profit margins while reducing the stress that can come from unsystematic approaches. The following advice can even be used for busy warehouses.
How to Organize and Track Inventory?
Tracking your inventory properly requires multiple steps and a lot of relationship-building. But, if you’re starting from square one, use these tips to organize your stock as soon as possible.
1. Use an Inventory Ledger
An inventory ledger can be your go-to tool for recording and tracking each item in your warehouse. By detailing each product’s arrivals, departures, and restocking status, you have a full history of every single item at hand. However, don’t rely on manual systems.
Software tools can record and track information like date of sale, product name, transaction description, quantity, unit price, total price paid, and total amount owed automatically. It can also do other tasks like ordering products, sales reporting, and people management. For example, you can do all of this with Ollie’s software in a brewery or specialty bar environment.
While the software handles the heavy task of real-time tracking and management, a written ledger serves as a reliable manual backup if you need it. It’s easy to use, keeps things organized, and is accessible even during mishaps such as technical glitches or power outages.
2. Set Up a Point-of-Sale (POS) System
Setting up a Point-of-Sale (POS) system can be helpful for inventory tracking. It’s not just about facilitating transactions at the checkout counter. A modern POS system provides real-time updates whenever a sale is made, effectively keeping your inventory count accurate at all times.
If paired with inventory management software, it becomes even more powerful. Software can interpret sales data from your POS and use it to identify patterns, anticipate demand, and suggest reordering strategies. Most POS systems also come with a card scanner that lets you accept payments, a dashboard that tracks analytics, and an invoice and purchase order sender.
Audit Your Stock
Auditing your stock is a critical aspect of inventory management. Regardless of how robust your software or POS system may be, human error and unforeseen discrepancies are always a possibility. Regular audits help identify these discrepancies early and correct them.
As a rule, you should audit your stock in three different ways:
- Full Year End Inventory: The process of going through your entire inventory manually, item by item, around the same time each year, usually during slow seasons.
- Cycle Counting: The process of spreading out inventory throughout the year and by product type. For example, counting beer in January and wine in February.
- Spot Checks: the process of picking a product at random and ensuring that reported stock matches the actual stock. Do this if inventory frequently goes missing.
If you’re using digital tools alongside physical inventory checks, any mismatches can be addressed promptly. Besides strengthening the accuracy of your inventory data, audits also foster accountability amongst staff members, making it a vital aspect of efficient stock control.
3. Implement a First In, First Out (FIFO) System
When setting up your inventory management strategy, adopting a First In, First Out (FIFO) system is highly advised. This process ensures that the oldest stock gets sold first, reducing the risks of spoilage or obsolescence for certain types of products, such as perishables.
It probably goes without saying that FIFO works best for businesses that sell a lot of perishables, as too much spoilage can increase inventory costs. However, you should still turn over types of stock to ensure that you’re not using old boxes, packaging, or products.
Such a system not only minimizes losses but also contributes to improved customer satisfaction by ensuring they always receive fresh and timely products whenever they order.
How to Know When to Order More?
One of the most important factors when it comes to tracking your inventory involves knowing when to order more of it. If you don’t have these systems in place, you’ll become unorganized.
1. Look at Historical Data to Check Demand
Another critical strategy to optimize inventory management involves analyzing your historical sales data. This information can help you identify the highs and lows in product demand throughout the year. You can start using your data after you’ve been in business for 3 months.
Using the data found in your inventory software, you can answer questions like:
- When is our business’s busiest week or month?
- When do we usually run out of certain products?
- What seasonal highs and lows are coming up soon?
Reading your data carefully is the best way to predict changes and avoid over or under-stocking your business. Review your analytics regularly to improve inventory management.
2. Separate High and Low Priority Stock
Distinguishing between high-priority and low-priority items is another useful strategy for inventory management. High-priority items typically include your best sellers or products with the highest profit margins. Whereas low-priority items could be less popular or slower moving.
Products in the first category should be given more attention because poor inventory management for high-priority goods can impact your bottom line more than low-priority goods.
3. Set Periodic Automatic Replenishment Levels
Try to set Perpetual Automatic Replenishment (PAR) levels. These are the minimum amounts of stock you should always have on hand. Once inventory falls below these levels, it’s time to reorder. This leads to a consistent supply of products, minimizing out-of-stock scenarios.
The equation for PAR is as follows:
PAR Level = (Weekly Inventory Turnover + Safety Margin) / Deliveries Per Week
Digital management can assist significantly here, allowing you to establish PAR levels for each item in your inventory based on historical sales data and forecasting models. The system automatically triggers reorders, ensuring smooth operation and optimal inventory maintenance.
4. Adopt Just-in-Time Purchasing
Just-in-Time (JIT) purchasing is a revolutionary method that involves reordering products just as they’re about to run out, effectively reducing carrying costs and space requirements.
Just-in-Time plays a key role in lean manufacturing, which is a methodology that focuses on minimizing waste and maximizing productivity. Dropshipping businesses thrive with this methodology, as it decreases inventory and the complications of keeping too much of it.
With that said, suppliers tend to dislike this system because it’s unpredictable. You’ll need to have a really good relationship with your suppliers to ask them to use the system.
5. Utilize Purchase Orders
It’s common for small businesses to call their supplier and ask for orders, but this can make inventory management incredibly confusing. With the purchase order, you can keep track of what’s ordered, fulfilled, and budgeted for. Suppliers also love this kind of paper trail.
If you’re already using an inventory management system that includes a POS solution, then you already have the tools in place to send out purchase orders and keep them organized.
How to Prepare for Future Orders?
All businesses want to save time and money. In regards to inventory management, there is one essential thing you can do to eliminate the tedium: make friends with your suppliers.
Develop Great Relationships With Your Suppliers
When you’re on good terms with your suppliers, you can get away with doing more, including using systems like the Just-in-Time method. When your suppliers like you, you’ll be able to call them up at a moment’s notice if you have a shortage or you ordered the wrong number of units.
Here’s what you can do to improve your relationship with your suppliers:
- Earn Their Trust: Trust is the backbone of any relationship. To earn their trust, pay them on time, don’t make too many rush orders, and treat their employees with respect.
- Be Communicative: When you readily share information with your suppliers, they can meet you where you are. It’s also easier for them to plan ahead and reduce costs.
- Asked for Their Opinion: If you include them in the decision-making, they can give you information about seasonal differences, material availability, and other things.
Without your suppliers, your whole operation would implode. Go the extra mile to show that you want to maintain good relationships with them, and the rewards will be massive.
If you’re ready to elevate your inventory management process, these tips are your guide to streamline, organize, and control it. The journey to improved efficiency and profitability starts with clear organization and effective tracking, and going digital with a potent software amplifies this effort tenfold. Empower your business by embracing these effective strategies.