The ability to efficiently manage inventory is no small matter in the world of small business.
(article continues below)
Having too little inventory can end up costing your company big bucks in lost sales and missed opportunities.
However, having too much inventory can also be costly, causing you to incur unnecessary purchasing, storage fees, and loan interest. It can even leave you holding merchandise that you may never be able to sell, especially if that merchandise is seasonal or holiday-related.
So what's a business owner to do? The only thing you can do – develop an inventory management system that achieves the right balance of inventory for your company. How you do that will largely depend on the specific inventory demands of your business and the type of merchandise you sell. Along the way, you will have to contend with a variety of issues and considerations, not the least of which will include the following.
Turnaround time is a major consideration in inventory control and management. Some products move quickly off the shelf. Other products can be expected to stay on the shelves for a longer period of time. Not all products sell at the same rate, and knowing which products move quickly and which ones move more slowly will go a long way toward helping you achieve a balanced and efficient amount of inventory.
Inventory Tracking System
Establishing a turnaround time for your merchandise requires you to create and maintain a system for tracking inventory. Inventory tracking systems come in a variety of formats from paper systems to sophisticated computer programs. But given the amount of affordable inventory tracking software on the market, there's no reason not to go with a computerized system. In addition to providing inventory data in an endless variety of formats, computerized tracking systems save money because they require significantly less staff hours to maintain.
Establish Ordering Lead Time
Another factor in inventory control and management is the amount of lead time it takes to reorder products from suppliers. When interviewing potential suppliers, one of the first questions you need to ask is how long it will take them to deliver products after you place an order.
But no matter what the supplier says, the real test will come when you place an order to refill inventory for the first time. During the startup phase, this can leave business owners feeling a little uneasy. What if the actual lead time is longer than you expected? Unfortunately, that's a risk you take. However, you can minimize that risk by working with established suppliers who have a reputation for delivering on time, every time.
No matter how advanced your inventory tracking system is, you will never be able to fully predict how much merchandise you will need to have on hand at any given time. For that reason, it's best to establish a built-in buffer – a reserve stock of inventory. Although your goal should always be to stock only the amount of inventory you need, having a little extra on hand never hurts.