Increasing your sales is one of the best ways to grow your business.
It does not matter whether you sell offline, through your online store, and in an online marketplace. As long as you are generating sales, you are one step closer to success.
However, the revenue you get from your sales can go to waste if you are not careful. This is where inventory management comes in.
What is inventory management?
In a nutshell, inventory management refers to how you keep track of your stocks. It can be raw materials, components, or a finished product.
The rationale here is to ensure that you have enough stocks depending on the current market demand. And when done correctly, you can maximise your sales and improve your bottom line.
Thus, you would not want to stock too much, that the products will collect dust in the warehouse. You will be accumulating storage without generating sales from it.
But you would not want your stock to be sparse, either, as it limits the number of customers you can cater to. This means that the sales you can generate will also be limited.
Managing your inventory effectively allows you to have enough products to sell. This also ensures all your products are sold at the right time.
Quick inventory management tips
If you mismanage your inventory, you can lose out on potential sales, or you end up wasting a lot of cash because of stocking up too much.
To help maximise your efforts, here are the eight quick inventory management tips that allow you to boost your sales:
- Implement the ABC analysis
- Perform cycle counts
- Implement a FIFO (first in, first out) approach
- Identify low-turning stock
- Practice the 80/20 inventory rule
- Keep quality control in mind
- Consider dropshipping
- Use an inventory management software
Implement the ABC analysis
Some products tend to generate more of revenue than others. That's precisely why you need to implement the ABC analysis to grade your stock's value on the percentage of your revenue.
● A = The percentage of stock that comprises 80% of your revenue.
● B = The percentage of stock that makes up 15% of your revenue.
● C = The percentage of stock that makes up 5% of your revenue.
This means that your A stock is made up of your most profitable and valuable products. These products should also be on-hand so that you won't miss out on sales in the future.
On the other hand, your C stock refers to your deadstock and is usually the least expensive item in your inventory.
ABC analysis means that all of your products are of equal value. You should also be paying more attention to more popular products.
Perform cycle counts
Don't wait it out until you have your annual physical inventory count to do all the regular inventory control audits.
Run cycle counts and study any discrepancies to know the time it takes to go through all locations. If you're not aware of it yet, cycle counting is a kind of perpetual inventory counting that takes place in waves. Small subsets from the inventory are usually counted per wave.
Therefore, it's a good idea for cycle counts to go through all the locations every quarter. That way, you'll get a more accurate back-office system.
Instead of doing an entire physical inventory, businesses use cycle counting. Doing so helps spread reconciliation throughout the year.
Every day, week, or month, various products will be checked in a rotating schedule. There are different methods in knowing which items count. But in general, items that have higher values will be frequently audited.
Implement a FIFO (first in, first out) approach
This principle is crucial in inventory management. This means that your old stock (first in) is the first to go out (first out).
This is vital if you're selling perishable items. You would not want to end up with spoiled products that you can't sell anymore.
Therefore, it's always the same boxes at the back, and chances are, they'll end up wearing out. You don't want something obsolete that will be harder to sell.
To better manage the FIFO system, the first thing that you need is an organised warehouse. This means that new products are added on the back, and older products stay on the front.
If you're working closely with a warehouse or fulfilment company, they're likely doing the FIFO system. Still, it's a good idea to confirm.
Identify low-turning stock
If you haven't sold stocks for at least six months to a year, then maybe it's time that you stop stocking on that item.
You might also want to think of various strategies to get rid of that stock, like offering discounts and promotions.
Practice the 80/20 inventory rule
You might also want to stick with the 80/20 inventory rule. This is where approximately 80% of your profits come from 20% of your stock.
Ideally, you should know the entire sales lifecycle of these items. This includes how many you plan to sell for a week, or month, closely monitoring them.
Usually, these are items that allow you to make a lot of money, so you know how to manage them effectively.
Keep quality control in mind
No matter your speciality, you must ensure that your products look excellent and are working well.
This can be as simple as letting your employees do a quick check during stock audits. More so, if the audit usually involves coming up with a checklist for any signs of damage and ensuring that products are correctly labelled. Doing so helps you avoid any legal liabilities on your end.
It would help if you also incorporated quality control in every aspect of your inventory management. This includes proper documentation and accurate ordering.
You should also ensure that every employee will adhere to every single process in place.
With dropshipping, suppliers will order the product directly from the warehouse to the customer.
That will remove the need to have the actual products on hand that might incur additional costs. Rather than controlling every aspect of the product's lifecycle, your main job is to market and sell the products.
Not only will it eliminate warehousing and fulfilment costs, but you'll also have a higher profit margin. That's because you get to buy a product at factory price and add a reasonable profit margin as a selling price. And you can keep that profit margin for every sale you make.
But of course, you have to be wary of your other operational costs like web hosting.
Nonetheless, you must build a relationship with a reputable drop shipping partner. That way, you can ensure the quality of your products and have the right inventory software at your disposal. This will allow you to monitor and manage transactions efficiently.
Use an inventory management software
Are you still using spreadsheets and notebooks? Well, the thing is, these are only doable if you're a small business.
But if you're a budding e-commerce business owner or you're opening another brick-and-mortar store, you'd end up spending a lot more time checking your inventory than taking care of your business.
As we said earlier, you can use inventory management software that will allow you to manage and optimise the supply chains. This will ensure that you have sufficient inventory on hand, are in suitable locations to meet customers' demands, and stay efficient.
Thus, investing in inventory management software enables you to make informed business decisions. This can give you an accurate picture of how your business is doing and where you should focus your resources at the moment.
Overall, the right inventory management system allows you to do the following:
● Manage limited resources
● Ensure that every point on the supply chain is accurate
● Make informed decisions about product marketing and development
There is no denying that inventory management is crucial in making your business successful. But without the right strategies, you will just be wasting stocks, money, and other resources. To prevent that, you should follow the inventory management tips listed above.
And when you have a solid inventory management strategy in place, the next logical step is to implement a seamless shipping process that will turn one-time buyers into returning customers.
Shiptheory has you covered by automating several shipping-related tasks, like shipping labels, manifests, customs documentation, tracking, and more. That way, it will enable a more efficient shipping process for your online orders and save you money and time while eliminating manual data-entry errors.
Author: Jake Rheude
Jake Rheude is the Director of Marketing at Red Stag Fulfillment, a reliable provider of California fulfillment services. He has years of experience in e-commerce and business development.