6 Steps to Business Inventory Management
One of the big, complicated parts of running a business that sells physical products is keeping up with inventory (unless you use dropshipping, but that’s a whole other thing).
For your customers to have a good experience, you have to make sure that every item you sell is in stock.
For you to make a profit, you need to make sure you don’t overstock items customers don’t buy much of, lest you’re stuck paying to buy and store items you don’t need.
You have to maneuver the tricky balance between having too many items to store and too few to sell. And the profitability of your business depends on getting it right.
Developing a strong inventory management system is therefore an important step in running a successful business. It enables you to track all your inventory easily and effectively, do a better job of spotting inventory issues (like theft, breakage, or incomplete orders), and improves your ability to figure out the right quantities of each product to buy when you make a new order.
If you’re in the early stages of getting a new business off the ground, or if you’re trying to figure a better system than the one you have now, this post will help walk you through how to set up business inventory.
1. Organize Your Physical Space
For business owners, space is money. You need a storeroom to keep your inventory in so you have the items on hand when orders come in. But generally speaking, the bigger that space is, the more you’ll be paying for it.
That means it’s crucial that you use the space as efficiently as possible and keep it well organized.
2. Create a Plan for The Space
First, you need to establish a plan for using the space. Research shelving options that will help you make the most of it. Use the measurements you have for the storeroom to figure out how many rows of shelves you can reasonably fit and how high up they can go.
Use that information to start working up a floor plan. Make sure you don’t get so focused on products during this step that you forget about people. You need to leave enough space between rows to allow your staff access to the inventory, and the higher you build your shelves, the harder it will be for people to access the items on the top.
When you’re working out what specific products should be stored where, remember to make sure that the most popular items are the most easily accessible and that anything fragile or heavy should be stored where it’s easy to move it without too much trouble. Keeping a heavy box of breakable dishes on a shelf that someone would need a ladder to reach probably won’t end well.
Try to organize the space so that it’s intuitive for people to find things. If you have a few main categories of products, group them together in the same section of the storeroom. For instance, put the basketballs in the same section as the footballs, rather than next to the kitchen products.
3. Provide Proper Signage
You need it to be as easy as possible for your staff to find the right product at the right moment. Good organization is a big part of that equation, but clear signage is at least as important.
Hang big signs to label the main sections of the storeroom – you want your staff to be able to see them from a distance when they’re scanning the room to figure out where to go.
Then make sure every row is labeled, as well as each individual product. You’ll benefit here from working out a numbering system to keep everything more organized and easier to find. Luckily, many types of inventory software help with that part.
4. Choose Your Inventory Software
It’s not impossible to do inventory management without software – some businesses still walk around with a clipboard and paper and laboriously load their inventory into a spreadsheet. But using inventory software that’s specifically designed for the process will save you time and help you stay more on top of what you have in stock at any given moment.
In addition to making the process of adding new inventory into the system and tracking it as it sells easier, inventory software can also process the data that helps you make better predictions about your future inventory needs so you can order the right amount of stock moving forward. And if you find a product that’s compatible with the other software you use, it will be easy to link them so you don’t have to manually update your inventory software when your POS system registers a sale.
To identify the best inventory software for your needs, do some preliminary research into what’s out there. For some industries, you’ll find industry specific inventory software that’s especially well suited to the types of products and processes you use. Get a few quotes and compare the features different tools offer against your particular needs. Once your software is picked out, the way it functions can help shape the inventory process you develop.
5. Determine Your Inventory Process
Now it’s time to figure out the exact steps your staff should take:
- Every time inventory comes in and needs to be loaded into your system
- Every time a piece of inventory gets sold, damaged, or goes missing
- And each time you check the items in the storeroom against your list of inventory (which you should do periodically)
You need a consistent process laid out in writing for your staff to follow that keeps everyone on the same page and ensures that you catch errors and issues early on.
A survey of retailers found that 28% of inventory shrink – or the amount of inventory that gets lost somewhere between the retailer’s purchase and sale to the customer – is caused by administrative error. A solid system for checking and keeping close track of your inventory can help you prevent a good chunk of that.
If your vendor sends an incomplete or erroneous order, you want your check-in process to be strong enough to catch it right away so you can correct the issue before the invoice is paid and the products are loaded into the storeroom. If a lot of your inventory is mysteriously going missing, then you need to figure out if there’s an administrative error behind it or if you have a staff member with sticky fingers. Your inventory process should help you reduce these types of issues, while making it easier to spot and manage them when they occur.
6. Analyze Your Process Periodically and Tweak for Improvements
The chances of developing a perfect inventory management process from day one are pretty much nonexistent. The longer you’re in business, the better you’ll be able to tweak the process based on the information you gain on how things actually work. Maybe you’ll realize a certain type of product is more popular than you expected and needs to be moved in order to be more accessible, or maybe you’ll realize you’re buying way too much of a product type that sells slowly.
Pay attention to what your staff and the data you’re collecting both tell you and check in on your process every so often – say once every 6 months – to look for ways to make it better.
As with many parts of running a business, setting up a business inventory process requires a certain amount of trial and error before you’ll come up with the system that works best for you and your staff. Take stock periodically of how well your system and software are working for you, so you can make an informed decision about any changes you consider.
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Kristen Hicks is an Austin-based freelance content writer and lifelong learner with an ongoing curiosity to learn new things. She uses that curiosity, combined with her experience as a freelance business owner, to write about subjects valuable to small business owners on the HostGator blog. You can find her on Twitter at @atxcopywriter.