When you sell products in your online store, it’s easy to let inventory management slide, as virtual sales happen without you needing to lay eyes on physical inventory. Yet, knowing the basics of how to manage your inventory can help you avoid costly inventory disasters that can leave your store on the brink of ruin. Here’s how to set up a smooth-running inventory system.
Regardless of whether your online store is new or you’ve been in business a while, you need to come up with solid numbers when ordering items for inventory. Since you’re not a fortune teller, there’s no way to know for sure how many products are going to sell ahead of time, so you must use a rough estimate. You can base your estimate on sales for the next three to six months, or longer. Forecasting is easier when you calculate using current growth rate, previous year sales, market trends, existing contracts or subscriptions, and upcoming advertising.
The trick to good inventory ordering is to not order too much or too little. Order too many items and you run the risk of having unsold items languishing in a warehouse, costing you precious funds that are better spent elsewhere. Order too few items and your store’s reputation might take a big hit when orders are cancelled due to lack of supply. With a quality inventory management system in place, forecasting accuracy should improve over time.
Setting Par Levels
Par levels are a basic concept of inventory management, and this term refers to the minimum amount of inventory you have in stock for each type of product sold. Par levels fluctuate depending on how much stock is ordered and how much of it sells at any given time. Ideally, you want to set up a system that automatically tracks this information. Imagine how difficult it is trying to manually keep track of numerous inventory items month-by-month. Losing track of par levels can lead to your store running out of a popular item, as well as angry customers who vow to never shop with you again. To avoid this scenario, make a point of checking par levels every few months so you can take quick action to increase stock before a sudden sales surge erupts.
Follow the First-In, First-Out Rule
As you continue to order items to beef up your inventory, older inventory may get relegated to the back of the warehouse shelf. This can lead to product spoilage, or products that lose relevancy to customers, resulting in lost sales. The first-in, first-out rule is a simple method for ensuring all inventory ordered first is sold before newer inventory. Many warehouses follow this rule, but you should double-check with your suppliers to ensure that all older inventory is moving out the door first.
Anticipate Inventory Problems
Inventory problems can sneak up on you, and if you’re not ready, you may struggle to resolve problems before they get out of control. Let’s say you invest in a “sure winner” that turns out to be a sales loser. How do you get rid of stagnant inventory? What do you do when a supplier runs out of product in the middle of holiday shopping season? Consider all the things that might go wrong, and create contingency plans for each scenario.
Periodically, you should conduct inventory audits using quality inventory management software that produces a report. Like many business owners, you may feel one audit per year is all you need. However, doing audits every month, or every quarter, can help you stay better informed about the status of your inventory. Audit reports may also be helpful with forecasting and risk management.
Setting up an inventory management system that includes forecasting, par levels, stock control, and auditing is essential for a successful online store.