It’s finally October, the pumpkin spice lattes are out in force, and Black Friday will be here before you know it. Which is great for most businesses because it means more sales, but also the not-so-great possibility of either under or over-estimating how much inventory to stock up on.
Although it may not be as thrilling as creating an advertising budget or rebranding your company, managing inventory is crucial for your small business—especially as the holiday season approaches. If your business focuses on products, you understand that how you manage your inventory can significantly affect your profits. Having too much inventory can lead to high storage costs and limit your ability to stock other items. On the other hand, having too little can drive customers away if they discover you don’t have what they want.
What’s the best course of action? Let’s take a look at some strategies for smarter inventory management for small businesses, and then talk about how to implement them.
Set a Smart Reorder Point
A reorder point is the lowest stock level you want to maintain. When your inventory drops to this level—let’s say 10% of your total stock—it indicates that it’s time to order more. A key factor in this decision is how long it will take for new products or raw materials, especially if you are involved in making the inventory, to arrive and be restocked. Setting a clear reorder point helps safeguard your business from unexpected issues beyond your control, like a production failure or a sudden spike in demand if your product becomes popular.
Find a Safety Stock Level That Makes Sense
There’s a bit of crossover between safety stock and reorder points; your reorder point is there to ensure that your safety stock is always accounted for. Basically, the point of safety stock is to create a buffer if and when there’s a supply or demand shock. When the shock inevitably arrives, safety stock ensures that you have enough inventory on hand to meet customer demand and continue to ship out orders on time. When you think about it, it’s a comforting thought: despite the chaos in other parts of your supply chain, or rampant demand, as long as your safety stock is there for you your customers won’t even know any better. They’ll just be happy to receive your product as normal.
Determining Dead Stock
When it comes to dead stock, you have to be willing to cut the cord a bit. Dead stock is a product that hasn’t been sold yet is still stocked in inventory. It happens all the time: you have a product that for whatever reason, hasn’t been a success. It sits on a shelf in your warehouse or brick and mortar store, collecting dust. But it’s not just collecting dust. It’s wasting valuable resources. Instead of holding onto dead stock, you should be filling your limited storage space with inventory that actually moves. The cost of dead stock boils down to losing potential revenue that would come from stocking products that sell.
How to Manage Your Inventory
How do you calculate reorder points, safety stock levels, and dead stock? Having an inventory management software available to handle the workload will help a lot. Besides that, here are three best practices for determining these key metrics:
Consolidate your product portfolio
If you hold your inventory in multiple places — perhaps you have more than one warehouse or location that stores the inventory — it can be tempting to have separate inventory counts. The problem with this is that you open yourself up to the possibility of miscounting and other discrepancies. Consolidate your inventory counts into one file, and account for multiple physical locations within that one document. For example, West Coast inventory SKUs can start with a 1, whereas East Coast SKUs can start with 0.
Make your product descriptions, recipes, and processes as detailed as possible
The more detailed your product descriptions are, the less likely you will be to make careless mistakes related to under or over-ordering supplies. Enter descriptions such as size, color, embellishments, and any other variants that are applicable in your inventory management software.
Make your manufacturing and sourcing processes airtight
If you don’t have a precise idea of which materials arrive from where and how long it takes to source them, now’s the time to start doing better. Track orders from your suppliers so that you know when stock is expected. Entering manufacturing processes and product recipes to better track product flow is a must — if there’s ever a disruption to your supply chain, you’ll want to know what order materials usually arrive in to ensure you are best prepared to find a replacement. Lastly, do periodic blind checks of your inventory to ensure that as orders come in, they are logged accurately in real time.
Takeaways for better inventory management
The more vigilant you are when it comes to managing your inventory, the better prepared you will be should anything go wrong with your process. Keeping track of key variables like smart reorder points or dead stock will help keep your entire supply chain organized and less vulnerable to the sort of shock points that can lead to lost sales, disgruntled customers, or both. If you haven’t done this before, it will take some time to get it right the first time, but having a smooth process will save you exponentially more time and capital once the Black Friday rush comes.