Inventory management 

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Effective inventory management is a crucial part of running a profitable business.

Establishing an effective inventory management process can help you:

  • Increase your working capital
  • Analyze sales patterns
  • Turn inventory into cash

Inventory management practices can help you plan, control, and organize the goods and materials required for your business. They will enable you to order the right type and amount of inventory to meet your customers' needs and keep your goods moving off the shelves.

If inventory control is managed properly, it can help your business reduce its costs, achieve economies of scale and prepare your business for uncertainties.

Best practices

  • Pay attention to consumer and industry trends: find out what hot new items are coming to the market so you are not left with obsolete inventory.

  • If you are having trouble selling items in your inventory, consider offering discounts or donating them to charity.

  • Keep accurate inventory records: consider using inventory control software to track and analyze your sales and inventory levels.

  • Put just-in-time inventory management into practice: find suppliers that can meet your needs as you fill orders.

  • Plan for the unexpected: make sure you have a good relationship with back-up suppliers to ensure that goods will be delivered if your main supplier cannot supply your products.

Set service-level targets

Keeping too much inventory can be expensive, and you risk losing sales if you don't have what your customers need. Setting targets for service levels can help you find a balance that works for you and your customers.

You may want to set targets and measure:

  • The percentage of orders filled
  • The amount of time it takes for a customer to receive an order
  • The number of sales you lose if you don't have the customer's item in stock

Measure performance on a regular basis so you can adjust the targets or your process to meet your goals. Talking to your customers about their expectations can help you set suitable service level targets, so don't be shy — keep the lines of communication open.

Predict sales

Sales forecasting can be a challenging process, but developing an accurate sales forecast will help you estimate how much inventory you will need to have on hand.

If you are starting a new business, you will need to make sales assumptions based on market research. Your local chamber of commence may be able to help you get started, and there are online tools that can help you benchmark your company against other firms in your industry.

If you have been in business for a while, adjusting your past sales figures can help you paint an accurate picture of upcoming sales.

You can predict future sales by:

  • Using past sales figures to predict future demand
  • Benchmarking your company against other firms in your industry
  • Analyzing your potential market

Learn more about forecasting and benchmarking techniques:

Inventory turnover calculator

The BDC's inventory turnover calculator measures your business' inventory turnover ratio. The result can help you analyze your inventory quality, make purchasing decisions, and set benchmarks.

  • Inventory turnover calculator

    Find out how this tool can help you calculate the number of times your inventory has been sold and replaced during the year.

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