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Inventory management is often considered pretty straightforward – How much stock did we sell? How much stock do we have remaining?
But it’s more complicated than just taking stock.
Inventory management isn’t just about taking stock of what is available or what is out of the door, it is also about predicting what is required to meet consumer demands in the future – you stock too much, you may end wasting a lot of raw materials and increase your warehousing costs; you stock too less, you may end up losing high intent buyers to product stockouts.
Simply put, inventory management is a process that can make or break your revenue.
And that’s exactly why most small businesses shy away from creating a thorough inventory management strategy.
What if we told you that efficient inventory management is a simple 5-step process? Don’t believe us? Read on.
Inventory management refers to the process of building an organized inventory of products you sell. It looks into the entire supply chain to identify the key stages of your product life cycle – right from management of raw materials, components and finished products, warehousing and processing.
As we mentioned above, poorly managed inventory can lead to either losing too much money hoarding raw materials and products that don’t sell, or understocking items that limit your sales opportunities. But let’s take a deeper look at why inventory management is important:
Source: ET Retail
No matter what you sell, it’s time to move away from managing your orders and inventory in notebooks and excel spreadsheets and find a more efficient way of keeping things well-streamlined.
There is no one-size-fits-all approach to running a business. But no matter what stage your business is at, staying prepared will never let you down and inventory management is a form of preparedness for the market.
The first step to better inventory management is taking control of all your customer and order data. While managing orders manually and through Instagram DMs may work initially, you will slowly lose track of conversations and insights on consumer demand, making you less prepared for their changing needs.
By setting up an online store, you can capture visitor data including their demographics, interests, products they’re interested in and products they’re actively purchasing.
You can also use your storefront to gauge consumer demand before stocking up a product with strategies such as back in stock notifications, where an interested buyer can subscribe to being alerted about a product’s availability. While this makes it simpler for the buyer to keep track of the product, it gives you an insight into just how many people are interested in purchasing it too.
Whether you sell two products or more, having an online store lays the foundation for better inventory management.
Additional resources:
If you already have an online store, focus your efforts on the next step.
The next step is to identify the key stages of your product making/ manufacturing process. Break it down into the smallest of steps possible and take note of who you’re dependent on to complete a certain step. For example, if you sell handmade candles online, your inventory path may look like the following:
Before you get started with inventory management, you need to effectively categorize your requirements across the supply chain. This typically includes grouping everything involved in the making of a product into 4 categories:
Remember to also describe the variables taken into account while categorizing your products, and don’t be afraid to create sub-categories. For example, you may want to break your finished goods into categories that describe collections better. We recommend preparing a CSV file of the same.
This allows you to spend more time and resources managing inventory of things that have a bigger impact on your business.
Depending on what you sell, the inventory management method you choose may vary. Here’s taking a quick look at some of the key inventory management techniques used by small businesses:
Remember, you may choose to apply a mix of inventory techniques for your business, or go with one. It entirely depends on what your product cycle looks like and who your target audience is.
For example, if you sell tea or coffee online, your focus should be on delivering the brews fresh. The LIFO technique of inventory management is what suits you best.
Additional reads:
To make things simpler for your small business, look for a tool that you can integrate your store with to apply the above techniques. These tools come with a simple interface that gives you the ability to either connect the platform to your online store, or upload a CSV of products you sell.
Based on the workflow you set up, they automatically track your inventory, alert you for restocks and also help you predict/ forecast consumer demand based on insights from ongoing sales.
Additional reads:
As you start to grow your small business, your inventory management techniques may evolve as well. Continually keep a watch on how the inventory management method you’re following helps you meet all business goals, where you face challenges and what aspects you need to account for in your supply chain workflow.
Don’t set it and forget it.
Keep your inventory management strategy optimized as per your small business needs to always stay on top of things.
Ready to get better at inventory management and meeting consumer demand?
Take the first step and set up an online store with Shopify today.
Why should you not use spreadsheets for inventory management?
Managing inventory data across the supply chain on a spreadsheet, is prone to human error. The manual entry of data and cross-checking the same makes the process even more cumbersome. The two added together result in lapses in product planning and demand forecasting, leading to loss in business. As a small business, it is important for you to use your time and resources wisely and hence automating inventory management is crucial.
How do small businesses organize their inventory?
Most small businesses approach inventory management manually. They keep track of orders in notebooks and spreadsheets initially. But as small businesses grow, they start to organize their inventory based on the requirements at each stage of the product life cycle that includes taking into account raw materials, packaging and similar aspects. This is where having an inventory management software comes in handy to keep data streamlined.
What are the 4 types of inventory?
The 4 types of inventory you need to take into account includes – raw materials/ components, work in progress, finished goods, and maintenance, repair and operating supplies (MRO). Raw materials are the goods you require to make a product, work in progress are products in manufacture, finished goods are products available for sale and MRO are goods required to run the business.
What are the 3 major inventory management techniques?
The most common types of inventory management techniques used by small businesses include FIFO (first in, first out), LIFO (last in, first out) and JIT (just-in-time). Each of these methods are focused on minimizing redundant inventory that may add to the storage costs of a business.
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