5 Steps to Pain-Free Inventory Management
Inventory management is not the topic most likely to excite the small business manager but it is crucial to the successful day to day running of your company. Here are some common inventory management errors and a little guidance on how to put them right.
1. Too much inventory:
It’s easy to invest too much money in inventory. Buyers often over-order just in case the latest ad campaign proves a runaway success there are concerns that you might have insufficient product to meet demand. This is a common and potentially expensive mistake. Warehousing costs money and unsold inventory is liable to depreciation and damage. Old, end of line stock can be very difficult to shift and you could finish up selling it off cheaply or even consigning it to the landfill, depending on your product.
The fix: Look at what you have sold following similar marketing initiatives you’ve used previously and make some accurate projections on what you will need based on this information. Consider seasonality. Do your sales spike over Christmas or in the summer holiday time? You might also be able to identify patterns that are less immediately obvious; end of month spikes, for example. Once you have this information, you are then in a position to order only what you are confident you will sell and you won’t be tempted to overstock.
2. Inventory tracking:
When you’ve established how much stock you will need to meet demand, you must ensure that you have it available to fulfil your orders. Miscounting is common; damaged stock, errors in receiving accounts and petty pilfering are the usual culprits. If you make the product yourself, you must remember to take into account any scrappage during the production process.
The fix: Bar coding your products can go a long way towards eliminating data entry mistakes. You could also use a system of “cycle counting”. This entails choosing several different product items each day and running an inventory comparison against the stock amount. Make sure you count your best selling items frequently.
If you have a large amount of different items in your inventory (drug supplies in a veterinary practice, for example), it can take an inordinate amount of time to keep track of everything.
The fix: A useful statistic to keep in mind when prioritising the most important items in your inventory is that 80% of demand is generated by 20% of the products. Focus your effort on that 20% and cascade your priorities downward accordingly.
4. Spreadsheet accounting:
Most companies use some form of spreadsheet accounting in their inventory management process. This can be dangerous as there is too much scope for user error and accidental deletion of data. It’s also very difficult for multiple users to synchronise their spreadsheets.
The fix: Specialist inventory management software is the way to go; Quickbooks and Peachtree are good examples of software accounting packages with an inventory function. Packages such as these provide you with a central database facility as well as facilitating an instant valuation figure for your total inventory.
5. Disaster recovery:
Perhaps the most important consideration of all is what would happen to all your carefully managed records should some catastrophe occur and all were lost to fire, flood etc.
The fix: Always back up your data. In the absence of anything else, a simple removable thumb drive which can be stored at your home would do the job. Basic back-up software such as Symantec Backup Exec is perhaps the best option and you should also provide your company accountant with a copy of your inventory data for safe keeping following every stock take.
*Image courtesy Flickr creative commons.