Good inventory management is critical for any business. Not only does it help a business keep enough stock to satisfy customer demand, but it also helps businesses avoid common pitfalls associated with inventory, whether that be holding excess stock, holding too little, or tying up too much cash.
Four tips for better inventory management
Regular stocktakes
Stocktakes are the bane of many a business owner. However, they are a critical part of solid inventory management. Outside of any stocktakes you may need to complete for accounting or tax purposes, setting time aside to complete a regular stocktake (be that monthly, quarterly, or at some other interval) can help identify any missing items from inventory early, as well as find any items that might be broken, spoiled, or otherwise unsuitable for sale.
What’s more, an up-to-date stocktake can also tell you whether you have too much stock of a particular item, or where additional purchases may need to be made.
Remove dead stock
While it’s always good to have enough inventory on hand to meet customers’ needs, there is such a thing as having too much inventory, particularly if that inventory is very slow to move off the shelves.
To remove items that fall into this category (also known as dead stock) consider reaching out to your suppliers to ask for a buy-back. Alternatively, you could try selling that stock through promotional discounts, by bundling such items with more popular, faster-moving goods, or, if you’re feeling charitable, by donating such items to charity and taking a tax write-off where eligible.
Consider just-in-time inventory
One issue with inventory is that having a lot of it on hand can be costly, as excess inventory ties up cash that could be deployed elsewhere in a business. One way to reduce this burden is to move to a ‘just-in-time’ (JIT) inventory system. Under a JIT model, a business relies on real-time demand, with materials only ordered when production is required. This helps keep inventory and storage costs lean while avoiding the issue of holding excess stock.
However, a JIT inventory won’t work for every business. For one, it’s heavily reliant on having an effective supply chain that can deliver goods promptly, but a JIT inventory can also come under pressure if your business has periods of unexpectedly high demand, as there won’t be any ‘safety’ stock to satisfy your customers.
Going electronic
While a just-in-time inventory might not be worthwhile for every business model, it’s fairly safe to say that adopting some form of electronic inventory management system is a beneficial move for most businesses.
Keeping a digital inventory brings many advantages, including:
- no more manual or paper records,
- real-time tracking of inventory levels,
- receiving alerts when inventory levels are low,
- setting minimum re-order limits so that you never run out of stock.
You can use general accounting software like Xero to manage your inventory or select a more bespoke inventory management software – the key is to choose something that meets your needs and price point. If you do decide to go digital, remember that you’ll still need to do manual inventory checks from time to time, to make sure everything’s correctly accounted for and there is no missing or damaged stock.
Looking for more tips?
This list is just a few of the ways a business can better manage inventory. For more ideas or advice on other ways to free up cash in your business, speak to a member of our team today.
