Strategies to Avoid Costly Inventory Problems

StocktakeInventory is what makes your business grow, it’s what makes it tick. It is usually the largest asset on your balance sheet and your company’s biggest revenue-generator.  Without it, you wouldn’t be able to make sales if you are in retail operations.

It goes without saying that poorly managed inventory can do serious damage to your bottom line. Businesses without clear strategies for streamlining the in AND out flow of goods will have trouble meeting their customer’s demands and will see mismanaged stock corrode their profits.

“Not managing your inventory properly means you are basically throwing money away.  Why would you do that?  It just doesn’t make sense.”

Follow these tips to ensure your business doesn’t fall prey to common – and costly – inventory problems.

1. Implement a system for accurate stock tracking

Whether you have a modest stockroom or a large warehouse, it’s important to know precisely when products are coming in or shipping out, so you’re able to re-stock efficiently.  To be honest, excel probably just won’t cut it.

  • Factor in lead time when calculating your basic stock, so you don’t run out of a product before new supplies can be delivered – disappointing your customers and missing out on revenue opportunities.
  • Implement an automated inventory management system to track fill rate and inventory returns for all products, and get a better handle on exactly how much stock you have at any given time.

2. Avoid excess stock

Not enough stock means your customers will buy from elsewhere, but too much stock should also be avoided.

Excess inventory is a financial drain on your business in more ways than one. It costs money in extra overhead, increases insurance costs, and reduces your liquidity – not to mention the space taken up by extra merchandise could be better allocated to more profitable products.

Here are a few ways efficient inventory management can help avoid the problem of dead stock:

  • Don’t purchase large orders of stock simply because they’re being offered at a discount. It might take much longer than anticipated to sell the products and turn a profit – in the meantime, your order gathers dust in your storage room. Or you could end up with stock that you can’t even sell.
  • Calculate and stick to a realistic safety margin so you only buy what you are reasonably sure you can sell. A good system for tracking sales and profits – and checking it often – is essential to making better buying decisions.
  • Excess stock costs you in storage, time and means you can’t purchase new stock. You also might consider returning excess inventory to your vendor (it may be worth it even if you have to pay a re-stocking fee).

3. Prioritise your inventory needs

You can avoid inventory mismanagement by putting better systems in place to prioritise your inventory needs. You should always know which products have the highest turnover ratios and ensure those items are always on hand.

One approach is to divide your inventory into three groups (A,B, and C) based on their dollar impact on your business . You’ll get a clear sense of which items to purchase more of and avoid needlessly tying up cash stocking up on the non-essentials.

4. Accounting software is the solution for you

If you’re looking into switching to accounting software, look into a solution that includes inventory pricing and stock control features. And be sure to invest in training to ensure your staff knows how to use the inventory tools – and has a firm handle on overall inventory management practices.

With enhanced customer data at your fingertips, your business will earn a reputation for personalised service. You’ll be able to respond quickly when a customer calls with a question about a product or an order. And you’ll be able to suggest substitutions and offer valuable add-ons based on their buying preferences, so up selling becomes a cinch.

“Understand the flow of stock through your business, from initial purchase to distribution to your customers will help to grow your small business.”

Savvy business owners are the ones that take the first step toward better profitability when they stop thinking of accounting software as simply a data entry solution and start thinking of it as a comprehensive tool for business growth.  Inventory management should form part of the discussion with your accountant and how to use the software to manage this area with ease.


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