How to Improve Your Inventory Management

April 19, 2022

Inventory management is a vital part of your company’s profitability, but small companies often need improvement in this area. Your firm can improve its inventory management with the tips below, which will boost your revenues.

Prioritize Your Products

It’s essential to put your inventory into categories and prioritize it, so you know the items you need to order more often. Also, you should know which are most critical to your organization but could be more costly and take more time to ship.

Inventory management experts recommend segregating product inventory into several groups, such as A, B, and C. Products in the A group are the more expensive, larger items that you don’t need as many of.

Meanwhile, products in the C category are less expensive and will turn over faster. Finally, products in the B category have a moderate price but ship out slower than items in the C category, but faster than the ones in the A group.

Inventory management software can assist you with categorizing and managing your product groups.

Remember the 80/20 Rule

Inventory experts say 80% of a company’s profits come from 20% of the products. Therefore, you should put a priority on doing an inventory on 20% of your products that make the most money. Also, keep in mind the total sales lifecycle of these products, including how many items you sell every month or week.

Remember, these are the products that bring in the most money, so keep a close eye on their quantities.

Audit Inventory

Some organizations do a complete inventory every year, but your firm may need to do so every week or month. It also can be necessary to do spot checks of the most popular products.

Regardless of when you audit your inventory, make sure you count inventory often to ensure it matches the counts in your product inventory system.

Focus On Forecasting

Some managers may be tempted to spend less time on performing inventory forecasting; some may simply take their best guess, or just purchase inventory and hope for the best.

The problem is that you may buy far too much or too little product. If the company must carry unnecessary inventory costs, it will cost you every day.

Take a close look at these for doing inventory forecasts:

  • Short term: Review your firm’s sales over the last one to three months to understand short-term sales trends.
  • Long-term: Review the sales you had at various times during the year to show when sales tend to rise and decline.

Avoid Inventory Errors With Regular Counting

As long as humans are involved, there will be inventory counting errors, even if you practice every tip in this list. That’s why doing a physical inventory count is essential.

Many managers do this count by closing the warehouse for at least a night and doing a significant count every year or so. However, this is usually a highly complex and labor-intensive job, especially with a big facility.

Another option is to spread your physical count throughout the year:

  • Cycle count: Workers are each given a job to count a small number of products every week. Over time, every product is counted and checked several times.
  • Spot check: You don’t do this count with any regularity. It may be appropriate if the product is more problematic or if an employee has some time to take care of the job.

Sell Your Older Inventory First

Most companies don’t want to use new inventory to fulfill their latest orders. But, unfortunately, that means there’s old inventory lying around that is more likely to expire or lose quality.

So it’s vital to have the rule to put your new inventory on the rear shelves and move old stock to the front. This means you have a first-in-first-out or FIFO setup.

Remember to discuss this with your CPA because they could use another way to evaluate your inventory at the end of the year.

Find Low-Sale Stock

If you have products that have not sold in the last six to 12 months, you may want to stop carrying those items. Also, think about different ways to get rid of those products. For example, try a 10% discount or another promotion.

Remember, carrying excess inventory costs money and space, so selling the slow-moving stock at a discount makes sense.

Remember these guidelines as you manage your inventory, and you’ll be sure to enjoy higher profits and cost savings.


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