Inventory management is the art and science of balancing supply and demand. The life of your business depends on it and in this article you’ll get a birds eye view of how you can master control of your inventory.
What is inventory management and why is inventory control important?
If you order too much inventory, you’ll spend more money than is necessary and end up tying up your cash. Cash is the life blood of a business, and ensuring that you have enough of it at any given time is important to any business. Plus, excess stock might not be sold before the end of its shelf life, or it could become obsolete, which would make the purchase a complete loss… yikes!
On the other hand, if you order too little of an item and it sells out, then you’re missing out on potential sales and revenue. Plus, you run the risk of upsetting your customers because they’re coming to you and expecting a consistent stream of products and services. It isn’t encouraging to customer if your explanation for a lack of product boils down to “I’m sorry, I just didn’t buy enough of it to sell you!” This is where the concept of reorder points and safety stock can come in handy.
While an inventory shortage or surplus is almost inevitable for any business, it’s the businesses that can best balance the supply and demand equation that thrive. The good news is that there’s a ton of resources and software on the market today that can make inventory management much easier.
With the advice in this guide and a little bit of practice, you’ll learn to order the right amount of stock for your business and and keep your customers happy! Because, at the end of the day, isn’t that what it’s all about?
How to master inventory control?
The first (and most obvious step) in getting control of your inventory is documentation. Basically, you’d want a single place where you can keep track of all your purchase orders (stock coming in) and your sales orders (stock going out). When you’re just starting out you might be tempted to use pen and paper to keep tabs on your inventory. You might think that this keeps things nice and simple, but it does have two notable limitations:
- Pen and paper are hard to change without things getting messy. If your business is active, those stock levels are going to change a lot as you buy and sell more items…and there’s only so much white-out in the world!
- Paper is analog so it has no backups and isn’t accessible from multiple locations. As your business grows and more people need to see the stock levels, having everyone standing around a single paper ledge can get crowded fast.
After struggling with these limitations, many new businesses owners will graduate to digitizing their inventory in the form of spreadsheets in Microsoft Excel. Excel files can be backed up for secure, worked on by several people at one time (if you use a cloud-enabled version of Microsoft Office), and are great for crunching numbers.
You can set up your own system for tracking your inventory and sales in Excel, or you can use pre-existing inventory templates that help get things organized (more on this later).
But, yet the biggest drawback to using spreadsheets to update inventory is that they they aren’t linked to the other operational parts of your business. As soon as you ship something out of the shipping room, the Excel sheet will need to be loaded up and updated. The same goes for when you receive a purchase order and need to add those items to your inventory. It’s a very manual process, even though it’s digital.
While it’s a great start, the chance of errors with manually updating spreadsheets make it hard to master inventory control. So what’s the alternative?
If you haven’t guessed, inventory software such as inFlow Inventory can help you run the entire operations side of your business. Think of inFlow as your business operating system. When you need stock in, you create a purchase order. When you need to sell something, you create a sales order. The best part is, as these documents are processed, your inventory is updated automatically!
Of course there are other advanced features available too, such as barcoding, inventory sub-locations, serial numbers, and more (none of which is available in accounting-focused software like QuickBooks).
What’s more, good inventory software offers to do some of the thinking for you. After you set reorder points, inFlow can tell you when your stock is running low and that you should create a purchase order to make more. Let’s see a spreadsheet do that!
Plus, there’s reporting built right in to make it easy to do your accounting when tax season rolls around.
Now it’s your turn!
If you’re interested in trying this for yourself, give inFlow a try by downloading it here. You can also activate a 30 day trial inside the software to get a feel for all the features.