5 Tips for Efficient Stock and Cost Management

5 Tips for Efficient Stock and Cost Management

For small businesses seeking consistent growth, every gain matters. A business's success or failure depends on its ability to find cost-saving techniques without compromising the quality of its products or services. The ability to reduce fixed and variable costs goes a long way in achieving this goal. This is where inventory management plays a role.

Inventory management is the process of monitoring, tracking, and maintaining a company's inventory.

Inventory Management involves purchasing inventory, storing inventory, and making profit from inventory.

In today's ruthless, hyper-competitive world, inventory helps businesses organize themselves better.

However, businesses often lose money due to inadequate Inventory Management. Even with the best marketing strategies, quality-controlled raw materials, quality finished goods, and competitive prices, a business cannot make enough profit if its basic inventory control system is flawed. Therefore, businesses must take the right steps to ensure inventory management is efficient.

Know What You Have

Inventory Management is the backbone of a successful retail business. An inventory management system tracks the lifecycle of your inventory and stock as it enters and exits your business. If you don't know how much inventory you have on hand, it becomes impossible to make smart decisions about purchasing and sales.

First, you won't be able to list your products accurately because you'll have little or no visibility into the amount of inventory you have. Allocating this inventory to different channels like e-commerce or brick-and-mortar stores will become difficult. Worse, you might also end up with too much inventory or entirely the wrong product.

Inventory Management experts have long argued that the best way to categorize inventory is to divide it into three groups: A, B, and C. Items in group A are high-priced items you need fewer of. Category C products are low-cost, high-turnover items. Group B is between moderately priced items that move slower than C products but faster than A products.

Work on Your Order Management Efficiency

For a small business, order management is usually simple. However, large-scale businesses often need additional layers of support to ensure efficient delivery and customer service after sales.

For growing businesses, more orders can mean more confusion and chaos. In an age where online shopping is on the rise, there is constant demand for increased sales and improved inventory control. Businesses need to pay attention to key areas to optimize their order management processes - such as streamlined delivery, customer service ratings, and reducing human error.

For example, the Economic Order Quantity (EOQ) method can work to improve your order management efficiency. EOQ is the amount of stock ordered at one time to maximize the total net benefit of ordering and holding inventory. The economic order quantity formula considers the cost of ordering and storing stock and then determines the order quantity where both costs are lowest.

Another way to optimize order management is to consider strategies that will reduce lead time. Lead time refers to the time between placing a purchase order to replenish a product and receiving the order into the warehouse. When there are more suppliers involved in the stock chain, lead time increases.

Keep Stock Records

Many businesses count their stock regularly. Some businesses count stock once a year, others monthly or weekly, and some do all three. However often you count, make sure you physically match your inventory to what is reflected in your financial records.

A stock record offers insights into issues that can affect your inventory system. It gives you a clear picture of the types of inventory you have and helps you manage them efficiently. Your inventory can suffer if you have an unreliable supplier. Stock records help you determine if your third-party vendor or supplier is delivering as they should. If a supplier is habitually behind on deliveries or frequently ships short, you may need to take action. In such a scenario, you may need to switch suppliers or experience stock shortages due to uncertain inventory levels.

An efficient stock record also helps you sell your product quickly and with a healthy profit margin. It ensures that the first products that enter your store or warehouse are the first products sold. First In First Out (FIFO) is an old but effective Warehouse Management rule. But why not sell the newest inventory first? Sometimes the quality of older stock is unreliable. Sometimes things also go out of style. The longer it sits, the more likely it is to become obsolete and worn. It can leave you with too much dead stock. To efficiently ship older stock, aim to arrange items in the warehouse by order of arrival, where older items stay in front and relatively newer items are in the back.

Set Up Predictive Maintenance

Predictive maintenance can help organizations increase efficiency and prevent unexpected failures when applied across the organization. However, many companies still don't cross-reference data analysis results to optimize their processes. The importance of stock management cannot be overstated.

For a business to manage, monitor, optimize, and adapt all processes related to inventory, orders, and fulfillment, management needs to analyze data from time to time. It helps fulfill orders quickly and give customers timely updates on delivery. This ensures they stay loyal to your business in the long run.

For example, an Order Management Software or Shipping Management System can ensure timely delivery. The only problem is, for any system to work correctly, you first need to feed it with correct data related to other logistics processes. There are solutions that integrate and consolidate all Supply Chain information for a business, presenting clear insights about inventory management, locations, fulfillment processes, and customers. It can guide a business to take the right corrective action at the right time.

Leverage Technology

The ability to adapt to and transition to new technologies is crucial for businesses to succeed in today's market. Automation enables businesses to increase efficiency, adapt to changing market conditions, and have a sustainable system.

With good inventory software, it is possible to efficiently manage stock levels, calculate the cost of goods sold, and track inventory. With efficient inventory management software, you get real-time updates on raw materials, finished goods, and inventory turnover.

Before choosing a software solution, make sure you understand what your business needs. Choose software that provides analytics important to your business. Make sure it is easy to use and integrates well with your other management software.

However, know that you can manage your stock not only with inventory management software but also with other types of technology. For example, a POS system can help with inventory tracking and planning. However, if you're keen on both inventory management software and a POS system, make sure these technologies are compatible with each other.

The right system will also help you stay on top of your perpetual inventory management. A perpetual inventory system instantly records the sale and purchase of inventory through the use of computerized point-of-sale systems. This method eliminates the need to physically count and record transactions and allows for real-time data analysis.

It saves money by reducing labor costs associated with manual counts and allows businesses to easily adapt to changes in demand or supply without having to physically recount stock items.

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