The cost of inventory can quickly add up and eat away at your profits. Fortunately, you can implement some of the following tips and tricks to reduce your expenses and boost your margins. Consider these requirements for effective inventory management.
Know your par level
Every business should know its par level, the minimum quantity of inventory required to satisfy demand, and actively ensure this level is maintained.
To know your par level, you first need to have an idea of your average forecasted demand, while keeping in mind the times throughout the year when demand spikes (such as Black Friday). Reviewing past sales trends can help you establish a base demand level for each season. Sustaining this minimum level of inventory lowers the risk of carrying excess stock (and incurring associated costs). It also ensures a steady level of inventory to satisfy demand, meaning never losing a sale to a competitor.
A cloud-based retail inventory management system can help you establish your par level more easily by accurately tracking inbound orders and inventory quantities. The right solution can even help you stick with alerts to reorder products as you run out, and even automatically reordering stock as needed.
When it comes to how to manage inventory effectively, you should be aware of potential risks and inventory disasters that can affect your business. Create an action plan in the event any disaster occurs (for example, a product shortage or a warehouse fire or flood). If you prepare, you’ll be able to remedy the situation quickly and keep your expenses to a minimum.
Follow first in, first out
Generally, the older the stock is the harder it is to sell. As such, the first items to arrive at your store or warehouse should be the first to go. The longer your stock sits in your warehouse or on your store shelves, the more vulnerable it is to damage and changes in demand. New customer trends, product design updates and quality improvements can quickly make your older stock worthless.
To sell old stock first, your warehouse should be organized to place products in order of arrival. Inventory control methods like this will prevent wastage and potential spoilage and avoid any related costs.
Communicate with suppliers
Having a strong relationship and open communication with your suppliers can help your business save in the long run. A good rapport promotes the willingness to work together to find solutions that work for both parties and can give you more leeway when negotiating prices. Additionally, if a supplier runs into any issues you’ll likely be the first to know, giving you time to plan and adjust accordingly.
By implementing the above inventory optimization techniques, your business will be able to significantly save on inventory costs in the long term.