In this article we will share 11 essential inventory rules you need to apply to your business in 2023.
1. Adequate Inventory
Maintaining an appropriate level of stock is essential to meet customer demands without incurring excessive holding costs. This balance ensures you can fulfill orders while not overburdening storage or finances. It's a delicate equilibrium that every inventory manager must master.
Example: If a shoe store typically sells 50 pairs of a particular sneaker every month, keeping a monthly stock of around 60 pairs ensures demands are met while having a small buffer.
2. Avoid Overstocking
Having too much inventory ties up capital, occupies more storage space, and can lead to increased wastage. Overstocking may result from over-estimation or inadequate sales data. It's essential to calibrate order amounts to avoid these pitfalls.
Example: Ordering 500 units of a seasonal dress when only 300 are expected to sell might result in leftover stock that's difficult to move once the season ends.
3. Understand Your Inventory
Every manager should know what's in stock in depth. This understanding involves knowing product details, shelf life, and the rate of sales. A clear grasp ensures accurate and timely decision-making.
Example: If a grocery store knows that tomatoes typically last a week and sell 100 units daily, they can make informed restocking decisions.
4. Prioritize Inventory
Not all inventory items have the same importance. Some sell faster or have higher profit margins, while others serve niche markets. By recognizing and acting on these differences, businesses can allocate resources effectively.
Example: If electronic devices give a higher margin than accessories, ensuring a steady stock of the devices might take precedence.
5. Track Product Information
Accurate product details, like SKU, price, and supplier, are pivotal in inventory management. Proper tracking avoids potential errors and ensures easier stock identification. Digital tools or organized databases can aid in this.
Example: By knowing that the SKU "A123" corresponds to "Blue Widgets" priced at $10, workers can quickly and correctly process incoming shipments.
6. Audit Inventory
Regular physical counts of inventory are a must. These audits ensure that the recorded stock matches the actual stock in hand. Addressing discrepancies early can prevent financial losses and stock mismanagement.
Example: If the system indicates 200 laptops in stock but a physical count shows only 190, an investigation can determine the cause of the shortfall.
7. Analyze Supplier Performance
Suppliers play a pivotal role in inventory quality and availability. Monitoring their reliability, pricing, and quality is essential for business success. Consistent and high-performing suppliers pave the way for more fruitful partnerships.
Example: If Supplier X consistently delivers quality materials on time and at a fair price, they might be favored over Supplier Y who has irregular deliveries.
8. 80/20 Inventory Rule
In many businesses, a minority of products drive the majority of sales. The 80/20 rule posits that 20% of products can account for 80% of sales. Recognizing and capitalizing on this can optimize stock and sales strategies.
Example: If out of 100 products, 20 specific items bring in the majority of revenue, it's wise to ensure those 20 are always in stock.
9. Consistency in Receiving Stock
Consistent processes ensure efficiency and accuracy. When every incoming item follows a standardized receiving protocol, errors reduce dramatically. This uniformity guarantees that stock is correctly counted, stored, and recorded every time.
Example: If every incoming batch of "Green Widgets" is verified, labeled, and stored in Aisle 3, there's less chance of misplacement or counting errors.
10. Track Sales
Understanding sales patterns is vital. Regular monitoring and analysis of sales data can inform future purchasing and marketing decisions. Recognizing trends, peaks, and troughs can lead to more strategic inventory management.
Example: If winter jackets consistently sell 500 units in December but only 50 in March, this pattern informs inventory decisions for the next year.
11. Inventory Management Technology
The role of technology in inventory management is indispensable. Using software or other digital tools, like barcoding systems, can drastically improve efficiency and accuracy. They offer benefits like real-time tracking, detailed analytics, and accurate forecasting.
Example: With a barcode system, scanning the "Red Widget" barcode instantly updates the system, reducing manual entry errors and speeding up the inventory process.
We hope that you will be able to apply our 11 essential inventory rules to your business and optimize your bottom line!