Maintaining inventory might just seem like an annoyance you tend to as supplies run low or customers order something obscure. But effective inventory management isn’t just a matter of knowing what’s in stock. It’s knowing what you have, why you have it and how long you’ll probably hold on to it.
To help you streamline the inventory management process and save money without sacrificing your customer experience, try following these guidelines for optimizing inventory management.
Track Inventory and Sales Daily. If you haven’t yet started taking thorough records, now is the time to start. All of your transactions must include some record of what inventory was required to complete the transaction. This may sound very easy for a retail storefront, but for, say, a restaurant where one transaction requires a few primary components and many others in small amounts, it can get difficult.
If you fall into the latter camp, determine the quantities of various invoice items needed to complete common transactions. For example, if the hotcakes at your restaurant sell like, well, hotcakes, ensure you know the exact quantities so you can track how much inventory you go through in a day to complete your number of transactions. After faithfully tracking this data for an extended period of time, you’ll be able to gain insight into the efficiency (or inadequacy) of your inventory management system.
Compare What’s in Stock to What’s Actually Being Sold. Once you have detailed sales and inventory records available, you can see if what you’re keeping in stock measures up to what’s needed for sales. In many cases, entrepreneurs realize they store too much inventory for fear of running out of supplies. But, in reality, keeping it on the safe side with inventory equates to playing it fast and loose with your cash flow.
The more inventory you have, the less cash you have to pay your bills, pay your employees or simply keep cash on hand to comfortably manage unexpected expenses. And while, in theory, you can always liquidate excess inventory in order to drum up cash, you’re making a big assumption: People aren’t always interested in buying your inventory. And it they are, they may not be willing to pay the price you’re asking.
Depending upon your business, the time-frame for keeping the proper amount of inventory on hand may vary anywhere from less than week (if your inventory has a short shelf-life) to years (if you’re in an environment that caters to a limited market of buyers, like the popular Gold & Silver Pawn Shop in Pawn Stars). Once you determine the proper timeframe for your business, you can plan to purchase the right amount for the right time period while staying cash flow positive.
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