Inventory management is all about striking the balance between customer demand and costs, ensuring that you’re not overspending while keeping your customers satisfied. When it comes to good inventory management, there’s four things you want to get right: you want to have the right amount of product, at the right price, at the right time and in the right place.
As it’s the beginning of a new year, everyone has resolutions to reduce their excesses in a bid to become healthier. So why should things be any different for your inventory?
This year, it’s time to add a leaner and healthier inventory to your list of resolutions. By getting the above mentioned aspects of inventory management just right, you’ll be able to cut away the weight of unnecessary costs, leaving you with more capital and time to put towards growing your business.
1. The Right Amount of Product
Ensuring you get the right amount of product is critical to your business success.
If you have too little in stock, you’ll be always out-of-stock and left with shelves that look picked over, which will lead to disappointed customers who’ll be driven elsewhere to purchase the items they want.
On the other hand, if you have too much in stock, you’ll be stuck with more than you can sell, and as the products start turning obsolete, you’ll be forced to sell them at clearance prices.
Ideally, your forecasted demand should come as close as possible to your actual demand. You don’t want to be burning your capital on maintaining excess stock or having to expedite shipping to get your next shipment in as soon as possible because you’re running out of stock.
2. The Right Price
How much are you spending on your products?
Do you think about how much you’re spending on just the products alone, or do you also factor in other costs like renting storage facilities and shipping?
If you’re only thinking about the cost price, you’re opening yourself to a whole bunch of extra costs. Some suppliers may offer price quantity breaks – that means if you buy above a certain amount, they’ll throw in a discount.
So if you belong to the first category, you may just find yourself reaching for your credit card when your supplier tells you to buy 20% more stock to enjoy a 10% discount and discover soon after that the amount of costs attached to that extra 20% of stock far outweighs the 10% discount.
But that’s not to say that you should stick religiously to your predetermined order level. Discounts are great if you’re still able to enjoy better rates after taking your inventory costs into account. If there’s a high demand for a fast-moving product that doesn’t take up too much storage space, it’s time to net yourself a good deal!
Coming Up Next
We hope we’ve provided you with some insight into why having the right amount of product at the right price is critical when it comes to your business’s success. Stay tuned, because next week we’ll be back to cover the remaining two things you want to get ‘just right’ for your business: having your products at the right time and in the right place!
Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.