According to the SBA (U.S. Small Business Administration), over 50% of small businesses fail in the first five years, and poor inventory management is one of the top reasons.
If you’re in the business of selling physical goods, the difference between a satisfied client base and a struggling business is accurate inventory tracking.
This article aims to summarize most, if not all, of the things you need to know about inventory management.
The challenges
First, let’s cover the issues faced by businesses when dealing with inventory:
- Too much inventory
In a 2013 survey conducted by consultancy firm REL of The Hackett Group, it was discovered that the largest publicly traded U.S. companies by revenue unnecessarily restricted nearly $0.5 trillion ($459 billion) in inventory due to inferior working capital practices.
Retailers dread items going out of stock, so the temptation to carry too much inventory can become overwhelming. But excess, unsold inventory means money sitting idle on shelves or in warehouses, crippling your ability to maximize working capital and generate more cash from operations.
Additionally, when unsold items go out of season, they lose their original value, and worse, become obsolete. Plus, they’re prone to damage while in storage or on display for too long.
- Inventory shrinkage
Inventory shrinkage, according to AccountingTools.com, is the “excess amount of inventory listed in the accounting records but which no longer exists in the actual inventory.”
inFlow Inventory, an inventory management tool used by approximately 900,000 small businesses worldwide, lists a few reasons inventory shrinkage occurs:
- Employee theft. Fraud and abuse in the workplace is, unfortunately, commonplace, which makes the hiring process a critical first step in combating the problem.
- Retail theft. This includes breaking and entering, shoplifting, and fake coupons.
Other contributors to shrinkage are damage, incorrect units of measure, miscounting, and evaporation, among others.
There are fake sales as well. A fake sale happens when a cashier enters a discount on an item paid in full by the customer. However this is done, for every 20% on an item that costs the customer $100, for example, the employee pockets $20.
- Using spreadsheets
Wasp Barcode Technologies, in its 2015 State of Small Business Report, found that 46% of small businesses don’t currently track inventory or use a manual process.
Those that don’t use inventory automation tools rely on spreadsheets such as:
- Microsoft Excel
- Lotus 123
- OpenOffice Calc
While electronic spreadsheets get the job done somehow, keeping your master file up to date poses some serious challenges:
- Versioning. If multiple people work on the same file, identifying which version is the most up-to-date may require some lengthy back-and-forth.
- File safety. Hardware failure may render your file corrupted or changes unsaved.
- Backups. Backups must be kept in a safe place, so you don’t lose important data in case of burglaries or natural disasters such as fire or flooding.
Inventory management software advantages
Now, let’s explore what software can do for you:
- Increased efficiency
In general, operational inefficiency is a byproduct of human error and a lack of standardized procedures.
If you still manage inventory manually, expect a lot of writing and typing, and the possibility of somebody committing a mistake, even theft, along the way.
On the other hand, with barcode scanning, a technology inherent in most inventory management software systems:
- Scans are faster, more accurate, and reliable.
- Zero to minimal learning curve, so your staff won’t require a lot of training time.
- Your inventory and other assets are easier to track and locate.
- You don’t waste money purchasing replacements for products or equipment you think you already lost.
- Ideal inventory levels
It’s not a contest. Both overstocking and understocking can significantly hurt your business. Foresight, therefore, is necessary.
Inventory management programs are equipped with reporting and analytics tools that allow you to:
- Maintain adequate inventory levels to meet customer demand at any given time
- Minimize storage and insurance costs
- Identify hot-selling versus slow-moving items, so you can make intelligent investment decisions
- Reduce administrative costs associated with frequent ordering
- Recognize when it’s time to replenish your stocks or craft campaigns to increase inventory turns
- Predict future sales and capacity needs
- Complete deliveries on time
- Increased sales
The end goal of inventory management is to strike a healthy balance between customer need, finite storage space, and limited capital. When you have adequate supply to meet demand, you need not turn clients away when they come to you.
It’s a domino effect, really.
The ability to immediately provide what a client is looking for sets off a chain of possibilities:
- You don’t lose customers to competition
- Customer loyalty and repeat sales
- A band of raving clients that can draw in more clients in the form of their relatives and friends
- Business growth and profitability
Why cloud-based?
There are several solid reasons why we recommend that small businesses look into cloud-based systems to simplify their inventory tracking procedures:
- Low cost of ownership
While it’s totally acceptable to use on-premise ERP systems to manage your inventory, there are upfront infrastructure costs to keep in mind, including maintenance and update costs.
With cloud-based inventory systems, you only need to sign up for an account, input your data, and you’re ready to go. The hosting company will take care of the servers for you.
- Quick deployment
Cloud-based inventory software deployment is near instantaneous. No additional software or hardware required. You don’t even need to install anything.
- No need for experienced IT people to maintain your servers
Because the server is kept and maintained by the software provider, you don’t need to hire IT experts to keep your system in excellent working order.
- Data center redundancy
Software providers are committed to keeping their customers’ data accessible at all times. The data you entrust to them is frequently backed up and stored in multiple data centers to prevent loss.
- Anytime, anywhere access
With your inventory data in the cloud, people authorized to access it can do so anytime, anywhere where there’s Internet connection, and on any device – desktop, laptop, smartphone, or tablet.
- Pay-as-you-go pricing model
Pricing flexibility is another advantage. You’re afforded multiple subscriptions to choose from, and you can pick the plan with the features that suit you best.
As your business grows and your inventory needs become more complex, a subscription upgrade can be done anytime.
Final word
Stockouts and overstock cost you money in more ways than one: missed sales, unhappy customers, storage costs, markdowns, and write-offs.
Prevent all these from happening with an efficient inventory tracking plan. inFlow Inventory has mapped out five simple steps to get you started.
Did you know about this type of software ? What is your favorite tool?
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