What is Inventory Management? + 7 Proven Tips to Help With Yours
Inventory is a crucial part of the success of every business that sells goods or possesses a product. Think of your favorite clothing brand or your go-to coffee you buy at the supermarket. It’s a pretty good feeling when you can get your hands on a favorite brand’s products.
Now imagine that you walk into a store looking for your favorite t-shirt or coffee, and when you get to the aisle it’s usually at… there is nothing there. You’re probably a little confused… did they move it to a different section of the store? Or even worse—as it been discontinued??
You scramble to find an employee, and shake them by the collar, yelling, “Where is it?! Tell me!”
Oh yeah, we’re out of stock, they reply.
Oof. Not want you to want to hear. You’re crushed. You feel betrayed. You get down on your knees and yell to the sky, “WHYYYYYY?!”
And this illustrates why inventory management is so important. Okay, so that might be a slight dramatization, but not being able to meet demand because of bad inventory management practices can be detrimental to your brand.
Today, we’ll be diving into the ins-and-outs of inventory management, why it’s so important, and then we’ll offer seven tips that will help you gain total control of your stock.
Inventory Management – A Basic Definition
Inventory management is exactly what it sounds like… it’s managing your inventory. To get a little more descriptive, it’s how you manage the process of getting your inventory to and from your manufacturing site or warehouse to stores or the end consumer, all the while paying close attention to how much you have in stock and forecasting how much you’ll need later.
If you’re here, though, then you’re probably looking for information on the nuances of inventory management—specifically why it’s so important and what the best ways are to actually manage your inventory.
But before we get to our list of seven tips for inventory management, let’s talk about the pitfalls of poor inventory management, as well as how good inventory management will benefit your business.
Why Inventory Management Matters
Earlier we discussed how poor inventory management may lead to your products not being on shelves. This is okay if your product is seasonal or if your brand is rooted in exclusivity and consumers are aware of that fact. But, if you want to be selling your products all year round and want to ensure that everyone who wants one, gets one, then inventory management is huge.
If you’re not implementing the proper inventory management techniques, then you may run into issues where you can’t meet orders if you have an e-commerce avenue of your business, as well as won’t be able to fill shelves at retailers.
This not only will hurt your bottom line, as you’ll be missing out on many, many sales of your product, but it’ll also harm your brand reputation.
On the flip side of this, you may also run into the problem of having too much inventory that you aren’t able to sell. This can be a big problem for another reason, just ask Ralph Lauren. The very respected and high-quality clothing brand ran into some trouble earlier in the mid-2010s when their valuation decreased by nearly half.
As former CEO Stefan Larsson said in a Wall Street Journal interview, a lack of inventory management was one of the main causes of the decline. As a result, they had too much inventory at ended up having a lot of sales and moving products to outlet malls, which in turn devalued their high-end brand. This caused consumers to question the brand, as they seemed now to be targeting two different markets—both high-end consumers and thrifty shoppers.
Essentially, the most important part of inventory management is making sure that you can accurately forecast your sales and then actually be able to fulfill those sales and orders.
Now, it’s the moment you’ve been waiting for. Our seven tips that will help take your inventory management to the next level.
7 Tips to Step Up Your Inventory Management
Invest in Inventory Management Software
First up, you’re going to need to make sure you have a great inventory management software to help make your job easier.
Having an easy-to-use, simplified inventory management solution that your entire warehouse team can utilize is the difference between having a good grasp on your inventory and having no control whatsoever.
The right inventory management software should also assist in your inventory control—which is centered more on making sure the inventory in your warehouse is accounted for and that everything checks out.
Here is a list of features that you should look for when searching for inventory management software:
- The ability to tell you product quantity in real-time
- User-friendly interface to make it easy for all employees to adopt the technology
- The ability for warehouse employees to pick, pack, and ship (if it can be done from any mobile device, that is a big benefit).
- Track receiving and shipping
- Relay user productivity to find bottlenecks
- Keep track of lot/serial numbers
In addition to these features, cloud-based software is also recommended because it allows for scalability, as well as the ability to use it from anywhere.
Prioritize and Organize Your Inventory
To make sure that you’re fulfilling your orders, it’s important to ensure that your warehouse pickers can grab the items they need efficiently. Organizing your warehouse for maximum efficiency is key for this reason.
When it comes to which method to use—and there are a lot to choose from— the ABC method is one of the best options for maximizing your control on your inventory.
With this method, you organize your inventory in accordance with the value it brings to you in terms of sales (in other words, how profitable it is).
For example, inventory in classification “A” is carefully controlled and managed because it has the highest value. Meanwhile, “C” has a lower value and therefore isn’t managed as intensely as those in “A”.
Let’s say a company that sells apparel uses the ABC classification method for its inventory. For their “A” classification, they have a high-end jacket. For “C”, they have some of their cheaper loungewear, which doesn’t produce as much value as their high-end, premium jacket and because they are cheap to make, they are not overly worried about having excess loungewear. Because of this, they put more attention towards the jacket inventory to make sure that it is right and that they can meet demand without having too many jackets leftover.
Audit Your Inventory
A proper inventory management software will make this tip easy for you. Auditing your inventory is important because it allows you to confirm what you suspect. In other words, if you have a spreadsheet with all your numbers for each inventory item, it’s still important to validate those numbers at least monthly (depending on the size of their warehouse, some businesses will even conduct daily audits).
The benefit of having inventory management software is that it will provide up-to-date information on your current warehouse stock and break it down in an easy to digest way. This will make auditing a much easier process because you won’t have to crunch any numbers on your own. Instead, you’ll just have to go around and manually check those numbers to ensure their accuracy (which, if you choose the right software, will be nearly a guarantee).
If you notice a consistent pattern of accurate audits, then you can potentially do them less and less and trust in your inventory management software reports to inform you when inventory is low or high for certain products.
Analyze Your Supplier’s Performance
Obviously, this is a tip that only applies to you if you actually have a supplier. If you’re making everything internally and aren’t outsourcing any products, then no need to worry about this. But, if you are working in tandem with a supplier, it’s a good idea to take a long hard look at how they are performing.
For example, you may have all your ducks in a row but if your supplier isn’t living up the agreement outlined in your contract with them, then it can cause issues for your inventory down the road.
Take the time to go over whether or not your supplier is hitting their arrival dates and timelines. If not, it’s time to have a frank discussion with your suppliers.
Track Sales and Evaluate Trends (i.e. Seasonality)
I know what you’re thinking. ‘Track sales? Well no duh!’
And yes, it may seem pretty redundant to add track sales onto this list of inventory management tips, but the key here isn’t that you just keep tabs on your sales. Instead, you actually evaluate the trends of your sales to find patterns that allow you to better prepare your inventory for the future.
For example, if you offer products where seasonality is a huge factor in terms of whether or not people are buying, then it’s smart to make note of that so you can plan for it in the future. Similar to how an inventory analyst at a company like Target will track sales for specific products, you should be doing the same for all your inventory.
If you can find the exact time of year or particular week in which people stop purchasing a specific product because of the weather or another factor, then the next time around you can ease up on stocking up on that particular product to cut down on wasted inventory.
Implement the 80/20 Rule
The 80/20 rule is one that you may be familiar with, but for those who haven’t, it’s a crucial inventory philosophy that can help you save money and maximize profits.
The 80/20 rule is that 80 percent of your profits come from 20 percent of your stock. To tie things back to the ABC inventory storing method, the 20 percent in the 80/20 rule would be all the items that fall under the A category.
According to Investopedia, “At its core, the 80-20 rule is about identifying an entity’s best assets and using them efficiently to create maximum value. For example, a student should try to identify which parts of a textbook will create the most benefit for an upcoming exam and focus on those first. This does not imply, however, that the student should ignore the other parts of the textbook.”
Don’t Put off Contingency Planning
Murphy’s Law states that anything that can go wrong, will go wrong. And when it comes to inventory management, you can prepare all you want but at some point, something will happen that will involve a little bit of damage control.
That’s where contingency planning comes in. You need to have a plan in place in case something does happen.
It can be something simple like if an order to a customer goes wrong, you’ll offer store credit or a full refund.
Or, it can be something a little more extreme like if you completely run out of stock for a seasonal spike in sales and having an emergency stock of those items.
Here are some other potential problems that may arise that you should plan for:
- A miscalculation in inventory means you have less product than you thought
- A slow-moving product takes up all your storage space
- Your manufacturer runs out of your product and you have orders to fill
- Your manufacturer discontinues your product without warning
Looking For New Inventory Management Software? Contact Scout Today!
With topShelf from Scout, you’ll have a better understanding of all the crucial details that are so crucial to your business’s success—such as lot recall, asset summaries, cycle counts, and more.
You’ll also easily be able to validate and verify receiving, picking, packing, and shipping transactions to ensure that orders are not missed. You’ll even be able to save time by printing detailed product and bin barcodes.
topShelf provides real-time reports and analytics like:
- Current Inventory
- Lot/Serial Number Inventory
- User Productivity
For more information on topShelf, visit this page and contact us today to get started on implementing a user-friendly inventory management software!