Practicing efficient inventory management is a vital function that determines a company’s profitability. It is a way of keeping track of what goods you have in stock, in what amounts, and the location of storage.
However, poor inventory management can throw your stock of products off balance. For instance, you might find yourself having excessive inventory which can bleed cash flow from your business.
Too much inventory is also more expensive to store and keep a record of. Minimal inventory, on the other hand, might render your business unable to meet your clients’ expectations. Such scenarios often drive customers to a business’s competitors, sometimes for good.
But when done right, inventory management can save you a lot of money in plenty of ways. Here’s a list of ways on how you can ensure your inventory meets both your business and customer needs.
1. Measure Your Fill Rate
Regardless of how hard you try, going out of stock is unavoidable especially if your items are in high demand. You don’t want your clients walking into any of your stores only to find the item they’ve come to buy is not in stock. This can frustrate them, driving them straight to an online store such as Amazon.
As such, you need to take note of your fill rate. Your fill rate is how well you’re able to meet customer demand at any time. Measuring your fill rate will help you to better manage customer expectations.
2. Implement an OKR System
An Objectives and Key Results (OKR) system is a tool businesses use to determine ambitious goals that can be measured with results. Applying an OKR system can help you manage inventory in more ways than one.
By outlining the goals you want to realize from inventory management, you will have outlined a clear business direction that will streamline the inventory management function of your company.
For instance, some of the objectives you can set include reducing inventory storage costs, ensuring the safety of inventory, and better cash flow management from tracking sales. After a decided time frame such as three months, you can assess the actions you’ve made towards realizing the set objectives and measure your success or progress from the results.
3. Use the First In, First Out Approach
The first-in, first-out (FIFO) approach is very effective in stock control. It involves selling stock that has sat on the shelf for the longest time. It can be a very vital tool if you are selling perishable items since it will help you avoid spoilage.
It’s also critical if you’re selling non-perishable items since product features and packaging design tend to change with time. You don’t want to be left with something obsolete or outdated that will be even harder to sell.
Good Inventory Management Matters
Managing your inventory is a lot more than just record-keeping. It provides you with valuable insight detailing when it’s time to restock and avoid dead stock or spillage by letting you know what products are approaching their expiry date.
Consider the tips highlighted above if you want to gain a clear understanding of how much stock you need for your business to make a profit and free your cash flow.