It is critical to examine your business frequently to ensure that you are on the right route. The management of your inventory is one of the most crucial aspects of your company. Your ability to serve your customers can make or break your business.

Effective inventory management can assist you in keeping track of all your goods and figuring out the precise costs. Additionally, it can aid you in managing rapid variations in demand without compromising customer satisfaction or product quality.

These are a few questions that you can answer to know some issues within your inventory that might require some extra attention-

• How well-managed is the inventory in your small business?
• When you required them, did you have the right products on hand?
• Did lack of proper inventory cause you to lose customers?
• Or did too much stock cause you to lose money?

Table of Contents-

1. What Is Inventory Management?
2. Three Essentials For Efficient Inventory Management
   1. Identify Your Items
   2. Plan Your Stock
   3. Stocktaking
3. Bottomline

What Is Inventory Management?

Inventory management helps organizations decide which products to order when and in what amounts. It involves monitoring from product purchase through sale. The method detects patterns and responds to them to ensure that there is always enough inventory to satisfy customer orders and an appropriate indication of a lack.

Inventory turns into revenue after it is sold. Inventory ties up cash before it is sold while being listed as an asset on the balance sheet. As a result, having too much stock is expensive and lowers cash flow.

Inventory management is crucial to a company’s health since it decreases the risk of stockouts and inaccurate records and helps guarantee that there is rarely too much or too little merchandise on hand.

Three Essentials For Effective Inventory Management

The main issues with inventory management are having too much inventory and not being able to sell it, not having enough inventory to fill orders, and not understanding what items are located where in your inventory.

Here are 3 essentials for effectively managing your inventory:

Identify Your Items

Plan Your Stock

Stocktaking

Identify Your Items

Effective inventory management requires a unique identity for each stock item. This particular identification is referred to as an SKU in supply chain management (Stock Keeping Unit).

The two main purposes of giving each of your items a distinct identity are to track the movement of each item and to analyze each item independently. When your list increases, it gets increasingly difficult to distinguish between them solely by label or description.

This will also make it easier for you to assign the most qualified employees to take care of such areas so that they may be finished promptly and correctly. This can be done through SKUs.

What Are SKUs?

The Stock-Keeping Unit (SKU) is an alphanumeric code used by retailers to track their inventory, analyze sales data by product and category, plan store layouts and traffic patterns, and improve customer experiences. Retailers create these codes based on factors they think are crucial.

Here are a few important points to keep in mind while building an SKU :

• Make your SKUs as straightforward as you can.
• Each individual on your team should always be able to glance at an SKU and instantly recognize the data it contains.
• Your codes may become muddled and challenging to recall if they contain special characters.
• Try to keep it simple with alphabets and numerals.

Plan Your Stock

Controls must be put in place as your firm expands to lessen the likelihood of out-of-stock occurrences. When a seller ignores the stock levels and waits to make an order until it is too late, there will be an out-of-stock situation.

Here are two ways in which you can manage your plan your stock efficiently:

a. Reorder Point

b. Safety Stock Formula

Reorder Point

A reorder point (ROP) refers to a time at which your inventory must be restocked and helps you determine when to order so that you won’t run out of supply.

By establishing a reorder point, the seller is always informed when it’s time to place another order. It also saves you from restocking unnecessarily causing wastage of materials and also aids in winning more customers.

What are the benefits of Reorder Point?

• Customers will be more likely to place additional orders from you if they see that their preferred products are consistently available in your store.
• It is significantly less expensive to keep your current customers satisfied through effective supply management than to find new ones.

Safety Stock Formula

A safety stock refers to surplus products stored in the warehouse to avoid running out of stock. It prevents any mishaps against changing demands.

Benefits of Safety Stock Formula:

• Your inventory’s safety stock serves as an additional layer of padding to help you withstand abrupt shocks.
• You can draw from your safety stock rather than lose sales if there is a delay in your supply or an unanticipated increase in demand.
• By doing this, you’ve made sure you still have some merchandise to sell during the delay by anticipating your safety stock and including it in your reorder point.

You must account for your lead time, average demand, and demand fluctuation while determining the appropriate level of safety stock.

Stocktaking

An important aspect of stock management is stocktaking. When you count and record all the inventory that your company currently has on hand, this process is known as stocktaking (or stock counting). Although it will have an impact on your purchasing, manufacturing, and sales, it is a crucial component of your inventory control.

How To Count Your Stock Efficiently?

You must total up your physical stock after a specific period, typically a year, and compare it to your inventory balances.

Manually counting the stock may sound uncomfortable and time-consuming, but it is necessary and worthwhile. It enables you to spot any errors and take appropriate action.

Few tips to keep in mind if you are just starting with the process of stocktaking:

• Only include items in your count that you own and that are listed in your inventory system.
• You can anticipate which portion of the store will take the longest to count if you have stored things in different sections according to their category or number. This will make it easier for you to assign the most qualified employees to take care of such areas so that they may be finished promptly and correctly.
• Trends that go overlooked during ordinary business hours may be revealed by taking stock. For instance, it may demonstrate that you were only able to sell a small number of units of a specific item, leaving you with a significant overstock.
  

Bottomline

To keep your inventory functioning smoothly, these are a few ways in which you can take your inventory management to next level. However, keeping track of all these processes can be extremely tedious and demanding, therefore it is advised to work on these tactics gradually.

Various third-party inventory management companies such as Vyapaari can help you take a load of these tasks by efficiently managing them for you, leaving you free to focus on other aspects of your business