Behind every successful store, there sits a comprehensive inventory management system. For a business to be profitable, it must understand the needs of the customer and possess the required goods to supply the market demand. To do this, a small business must know its stock inside and out, and to do that, a business must-have inventory management.
So what exactly is inventory management, and how can your business benefit from using it?
These topics will help you understand more about inventory and it’s role in small business management:
- Inventory Management Methods
- What is Inventory Accounting?
- Common Inventory Terms
- How to Track Inventory
- How to Track Online Inventory
- Inventory Valuation: An Overview of Costing Methods
- What is a Reorder Point?
- What is Perishable Inventory Management?
- How to Manage Obsolete Inventory
- Benefits of Using Inventory Management Software
What Is Inventory?
Inventory is the collection of goods and materials that a business possesses with the intention of resale. This inventory, also known as stock, must be appropriately managed to prepare for customer supply and demand.
Suppose you run a store that sells school supplies, then your physical inventory will be made up of notebooks, pens and pencils, binders, and more. You will need to be well-stocked in advance of your busiest seasons when the kids go back to school in August or September. Inventory management of a brick and mortar store will help you prepare and oversee your product sales.
However, inventory does not only refer to the goods of a business being sold. Companies that provide services to people will also possess stock items required to perform those services. A car wash company needs to stock soap, squeegees, waxes, and other products used to clean the vehicles. Therefore, inventory management is a necessary part of both business types selling goods and services.
How to Manage Inventory
Monitoring inventory levels, knowing the volume of items in stock, what’s about to go out of date and needs to be sold right away- this is the knowledge and control of your stock that inventory management provides a business.
Such effective inventory management will allow you to keep up with the market demand and know when your busy seasons are and what inventory items sell, and when. This management will consist of the monitoring of your goods- knowing what supplies need to be ordered and when while always keeping an eye on the stock quantities and movement.
Why is Inventory Management Important?
Knowing the stock levels at all times, what’s selling and not selling, when to order popular goods from the right sales channels and how they affect the bottom line, this is all essential knowledge that a business owner needs to know to create a successful and profitable store.
Inventory management will provide you with this knowledge. Selling an item to a customer is one thing, but knowing what to stock and when to stock it for optimal sales, while covering the inventory costs and carrying costs, is the main insight you’ll want to gather from managing inventory.
As a store selling school supplies, your inventory control is a critical aspect of the management of your goods. Knowing what you have in stock- low and high quantities- can tell you what your customers are buying and not buying. From there, you can run inventory reports and choose to reorder the popular pens for the school year and opt to cancel your order of a low-selling eraser brand.
A company’s goods can be managed manually or automatically with software. To cover the best practices of inventory management techniques, businesses typically use inventory tracking software, like QuickBooks Online, to manage inventory automatically.
Types Of Inventory
Any business that sells a good or product will have an inventory suited to their business. But there are various types of inventories out there, including,
- Finished Goods Inventory: Products have been made and are ready for use- this is the most popular type of stock as many businesses sell finished goods in various industries- such as a retail business, home decor store, appliances and electronics.
- Perishable Inventory: Goods that lose their value over time are considered perishable. Food and groceries, flowers, even live event tickets are perishable goods as the ticket is no longer valuable once the event has finished.
- Raw Materials Inventory: The stock of materials that are required to make finished goods or products. If your company manufactures and sells rugs, then the fabric, dyes, and materials needed to create the rugs will be your raw material inventory.
- Work-In-Process: This inventory refers to goods within a production cycle that are not yet completed. Things to consider with work-in-process stock is the cost of the materials, the cost of developing the materials into goods, and the labour and factory overhead expenses to do so.
- MRO Goods: Referring to maintenance, repair, and operating supplies inventory- these are items that directly impact the production of goods but are not related to the finished goods inventory- i.e. machine parts, safety gloves, packaging materials, and office supplies.
- Safety Stock Inventory: Also known as buffer stock, it is the goods left in reserve in case of a product shortage due to supply and demand or in case of low delivery reliability.
- Smoothing Inventory: Also known as anticipation inventory, they are the products ordered in preparation for future high demand or stocking up on popular goods when the price is low – best for businesses who have busy seasons to keep active in the off-peak seasons.
- Transit Inventory: Refers to the inventory in transit, or the goods or raw materials being transported to your business in the supply chain. Businesses must always take into account stock that is not in the physical location of the store but has been bought and is on the way.
- Cycle Inventory: A system that tries to balance the inventory holding costs and the costs associated with setting up the machinery to make the products. Such stock is ordered in batches to try and equalize the two expenses.
- Decoupling Inventory: Businesses that use multiple machines to make their goods will find disparity in the output of the machines. Decoupling inventory refers to the parts and materials covering the different machine outputs to stop the disruption of work in the assembly process. The more decoupling inventory a business possesses, the less likely a disconnect happens between the various manufacturing stages.
The Reorder Point of Stock
One of the biggest responsibilities of the inventory management process is ensuring there are enough goods stocked in the store to cover customer demand. When the stock reaches a certain low level, it will hit the reorder point, which will trigger the reordering of the required goods to replenish the stock.
Anyone who takes over inventory management of a business must know their inventory’s minimum threshold for the reorder points of various goods and the order quantity needed to cover the demand.
Inventory Management Systems
The benefits of using inventory management software are immense. The software can help business owners with stock control and supply and demand, with greater productivity and profitability. QuickBooks helps with tracking inventory, lets companies run reports and gain valuable market insight into what products are selling and what is not to help improve the cost of goods sold.
With QuickBooks Online inventory tracking feature, you can manage your business’s goods easily, with low stock alerts, inventory insight reports, and real-time valuation. Cover all your inventory management needs with this software. Why not try it free today?