Are you using an inventory management system for your business right now? If you aren’t, you should opt to get one as soon as possible. The things that an inventory management system can provide are of high value for your business, regardless of its nature or size. Without proper management, you’ll frequently find yourself in hasty situations such as losing business because some items went out of stock, or worse – losing the hard-earned money because you have too much stock.
Every company these days needs to keep track and record of inventory, track profits and sales – and basically keep up with the demand. This is all made possible with the right system.
What is Inventory Management?
Inventory management is a process, a technique that allows you to store and properly keep inventories to boost the success of your business.
Investopedia defines this as follows: ‘’Inventory management refers to the process of ordering, storing, and using a company's inventory. This includes the management of raw materials, components, and finished products, as well as warehousing and processing such items.’’ Effective inventory control gives you continued access to vital information for the company’s daily operations. You’ll know what amount of products you have, whether you need to stock up or replenish items to sell the desired amount – and reach your desired goals.
If you have an overstock inventory, it's important to take action to prevent it from becoming a financial burden on your business. One option is to discount the excess inventory to encourage customers to buy it. Overstock inventory can be a financial burden for businesses as it ties up capital that could have been invested elsewhere. Moreover, excess inventory takes up valuable storage space, adds to the cost of goods sold, and increases the risk of damage or obsolescence. Closeout Express can help you manage this overstock inventory.
Understanding inventory accounting
Businesses need to keep track of their inventory at all times. When it comes to inventory management, there are four main categories that the process must include:
1. Raw materials
These are the materials you purchase intending to transform it into a ready product i.e. finished goods.
2. Work in progress
Any process that goes between raw materials and their transformation into finished goods belongs in this part. This includes all steps and processes, techniques, and methods used to make things happen.
3. Finished goods
When you reach this point, you’ll have completed goods ready to be sold on the market.
4. MRO goods
Finally, inventory management includes keeping track of maintenance, repair, and operation goods. These are the items used to support the finished goods’ productions as they are purchased.
Choosing the right inventory management software for your business: Lightspeed
According to Lightspeed, the currently best-rated inventory management software, there are 3 main things that such an investment can do for you. They include:
• Manage your stock. The software gives you many features that will allow you to do this. You can process and follow the orders directly from a single system, create product variations based on material, color, and size, identify inventory pieces with unique serial numbers, and even personalize the orders to meet individual customers.
• Centralize the purchasing. Instead of calling up vendors and making lengthy, messy lists, such a system allows you to stock up your inventory directly through integrated vendor catalogs. In software products like Lightspeed, you can upload up to thousands of items and import products from thousands of catalogs. Not only that – but the system will automatically consolidate purchases and orders, set custom reorder points, and remove returned items from the inventory.
• Move inventory around. Surely, you can do this on your own, but how effective will it be? With systems like these, you will have full control over the prices you charge. You can automate discounts, set up promotions in advance, change prices in bulk, etc.
In other words, an inventory management system will help you make smarter decisions and avoid mistakes. You will know which items to get off your shelves and when, which items to order before you lose customers, and anticipate the trends in your industry. Even though this is essential, the number of companies that don’t utilize such a system is shocking. According to Wasp Barcode, 46% of companies use a manual method or don’t track inventory at all!
Objectives of a good inventory management system
There’s a shocking amount of capital that goes tied up in inventory. Capterra has reported that inventory combined with accounts payable and receivable has tied up $1.1 trillion in cash, which equals 7% of the GDP in the US. Inventories take most of a company’s budget. Your investment in it is probably the biggest expense for your company. As such, you cannot afford to make mistake after mistake, losing money and with it, chances to make your company grow. This is why inventory management software products exist. Their objectives include:
• Avoid inventory under-stocking and overstocking
• Eliminate duplications in stock ordering
• Ensure that the company has a continuous supply of the necessary stock and materials
• Maintain the availability of materials when they are required
• Maintain minimum working capital based on current sales and operational activities
• Optimize costs linked to inventories (carrying a cost, purchase or storage cost, etc.)
• Maintain an accurate, accessible, and systematic inventory record
•Minimize loss through wastages, deterioration, pilferage, and damages
What can this do for your business goals?
As per the objectives, the right choice of an inventory management system can do wonders in terms of saving you money, earning you money, as well as giving you more control over your business’ sales and operations. Here are just a few of the perks you can expect when you make such an investment.
Minimized missed sales
A lot of the opportunities in terms of sales today are a result of poor inventory management. How often does it happen for your company to run out of products that customers demand? When this happens, whether it is because of a faulty management system or no system in place, you’re losing sales. This surely does no good to your business goals.
Any retail business requires smart strategies and investments. To make your business successful, you need to invest in the right places at the right time. A good management system will help you learn what quantity of each product you need, and which products are sold more frequently than others.
Early detection of potential issues
Keeping an eye on your inventory will allow you to spot problems before they become bigger. This in return, can prevent many financial losses and problems. For example, if there’s an error in the reorder point formula, you need to know before it costs you a fortune.
Accurate product reports
There’s a lot to learn from product reports. These allow you to produce accurate cost values for your inventory and with it, create precise financial reports for your business. Most of the management decisions regarding sales are based on such reports.
As your business grows and people start buying more of your products, you’ll need to stock up more often. Reordering can be a hassle if you do it in the traditional way – by taking notes, making lists, and calling vendor after vendor. With a good system, this is as simple as it gets. You can make automated orders triggered by purchases and have your stock replenished at all times. You can instantly get access to products you might want to stock up on since you'll have your inventory in front of you at all times.
Everything will run better if you know what your consumers demand, how much of it, and how often. This will allow you to tweak your management strategies and provide better customer service. People are satisfied when they receive products on time, or when they can go to a store and find what they were expecting. Also, forget about incorrect shipments if you keep on top of your inventory levels – and orders.
No one wants to think that people are stealing from inventory, but this happens more often than you can imagine. It pays to be vigilant. Accurate inventory with the help of an inventory management system can give you an insight into what your staff is doing.
Whether you’ll save money because you didn’t overstock or because your staff has instant access to key information, such a system can be very cost-effective. Instead of employees running around trying to figure out which items are in stock and which aren’t, trying to figure out where things were misplaced, they can simply use the data from your system to handle things. It saves time and limits errors. With it, it can save you a lot of money.
A proper inventory management system is key to the successful management of your stocks and raw materials. This can keep costs down, allows you to better track what you have at your disposal, and helps you achieve the goals for your business. If you boil it down, retail is all about having the things customers need when they need them. Inventory management serves this exact purpose. Without it, you can hardly meet your goals, at least not without losing a fortune and many sales along the way. Knowing this, as a business person, you need a systematic approach. The right use of an inventory management system will ensure both efficiency and accuracy in your business. Such solutions offer amazing features for automation, reporting, and improvement of your processes.