If your small business sells products, an inventory or stock management system is necessary. With an inventory management system in place, you know how much of an item you have on hand, when you need to order more and whether you’re ordering the correct amounts or not.
While older methods of managing inventory typically involved keeping track of products by hand, cloud-based systems automate much of the process and take a lot of the guesswork out of knowing what’s on hand and when to place a new order. If you haven’t started using stock management for small businesses, learn more about why it’s important and how it can help your company.
What Is Inventory Management?
The goods or products your company plans on selling are its inventory, and inventory management is a vital part of your business’s supply chain. When using it, you can keep better track of your inventory from the manufacturer to its arrival at your warehouse and the point of sale. Inventory management helps your company have the correct stock levels at the right time and in the right places. It also streamlines the process of reordering by letting you know when stock has reached a reorder point.
Inventory management typically involves three steps:
- Purchase: The purchase step refers to the ordering of products. You might purchase new products for your customers to try, or you might often reorder from a select list of popular items. Depending on what you sell, when you purchase and how much you buy can fluctuate throughout the year. For example, you may order more holiday decor in early October than throughout the rest of the year.
- Storage: Once you’ve purchased stock to sell, you need to store it somewhere until customers buy it or until you send it to brick-and-mortar stores. You need to know where your inventory is located — such as what shelf or aisle in your warehouse — and how much of it you have on hand.
- Fulfillment: When a customer buys from you, their purchase is fulfilled when you ship the item to them or they take it home from a store shelf. Inventory management helps you fulfill purchases by ensuring you have enough of the product on hand to sell to customers.
The Importance of Inventory Management
Inventory management for small businesses is critical. It helps you find a balance between having too much stock and having too little stock. Getting your inventory levels just right helps you avoid waste and improves your relationships with your customers.
An example could be if your company sells cosmetics. One season, a particular shade of red lipstick is predicted to be the most in-demand shade. You order lots of the lipstick and stock it in your warehouse. You ship it out to customers as they order it.
Without an inventory management system in place, it is harder to keep track of the lipstick you’re selling or how much remains in the warehouse. You might place another order for it, even if you haven’t sold much yet. Then, the new lipstick order arrives and joins the older stock on the warehouse shelf.
When the end of the season approaches, you check in, only to find that the lipstick hasn’t sold much at all. There are still many tubes of it in the warehouse. The trend has shifted to a new shade, and the red is selling even less or not at all. You either have to discard it or discount it, both of which affect your bottom line.
If you had an inventory management system in place, you could have quickly reviewed past sales history before even ordering the first batch of lipstick. You might have noted that red in general wasn’t a big seller with your customers, and you may have decided to place a smaller order, if at all.
If you did order the lipstick, you could later refer to your inventory management system to check its sales progress. You might see that it wasn’t moving very quickly, so there was no reason to order more. Then, when the end of the season arrived, you wouldn’t have lots of unsold lipstick on your warehouse shelves.
5 Reasons Why Small Businesses Need Inventory Management Systems
Here are five reasons to invest in a small business inventory management system.
1. Improves Customer Satisfaction
Your customers are your business’s bread and butter. Once someone places an order with your company, you want them to keep coming back, as a repeat customer has more value than a new customer.
Ensuring you have items in stock is one way to keep your customers happy and returning for more. If the items that customers look for on your website are regularly out of stock, then they will likely start shopping elsewhere.
The same is true for brick-and-mortar customers. If your company’s website tells a customer that a particular product is in stock at a physical location, they will be thrilled when they get to the store and can purchase it immediately. But if they take the time to travel to your store only to find the item isn’t there, they’ll most likely have to go elsewhere to complete their purchase.
2. Helps Keep Costs Down
Inventory management helps your company reduce costs by ensuring you only order products that are likely to sell. In the lipstick example, a company spent a considerable amount on a product that didn’t sell well. It also had to spend money on storing the products in its warehouse.
3. Improves Cash Flow
Cash is king, particularly for small businesses. An inventory management system helps your company free up cash by minimizing the chance that you’ll lock your money up in products. For example, using a purchasing system allows you to replenish your inventory as needed. You won’t lock up your cash in a product that sells slowly, and you will be better equipped to pay bills and obligations monthly.
4. Reduces Waste
Using an inventory management system helps you order what you need, when you need it, cutting down on product waste and overall waste. You don’t have to worry that a product will go back sitting in the warehouse or in the store, as you’ve ordered exactly the right amount.
Purchasing what your company is most likely to sell also cuts down on packaging waste and wasted time and energy from your team.
5. Increases Accuracy
An inventory management system takes the guesswork out of purchasing, storage and fulfillment. You gain a good understanding of how your products sell and when they are more likely to sell when you track your stock with a software program. That means you can get your inventory down to a science, saving time, money and avoiding waste.
Learn More About Finale Inventory Today
Finale Inventory is a multi-channel inventory management system developed with the needs of small and growing businesses in mind. Contact us today to set up a demo and see how our platform can help your business.