Extraordinarily low-interest rates and a rapidly evolving business climate have made inventory management a lost art. Other business initiatives may seem to be more urgent and impactful, but in reality, mastering inventory levels is a key to most successful and growing businesses. Here are the reasons why prioritizing your inventory management is a must:
- Less shrink. Shrinkage represents the cash that goes to waste because inventory is damaged or past the sell date. It is a sign of weakness in the inventory control process. Adding quality control practices that account for climate control and other factors can help avoid damaging valuable stock and catch defective purchases before they make it into your warehouse. Tightening up your inventory controls equals less stuff to throw away which means less money wasted.
Action: Create a shrink scorecard. Note all product that is non-saleable, and track units tossed, their dollar value, and who supplied it. Compare waste to the prior year and against your goals.
- More cash. In a perfect world, you receive your inventory as soon as it is sold. Material or product that sits in the warehouse adds storage costs and risks turning into an unsaleable product. Aligning your inventory operation with your sales cycle plays directly with improving your cash flow. Understanding sales trends will allow you to optimize your stock levels and save money in the process. When you spend less on unnecessary inventory costs you have more cash to invest in marketing, new product initiatives or capital equipment that can bolster your bottom line.
Action: Implement just in time (JIT) with key suppliers. Explore ways to deliver the product when you need it versus purchasing a larger amount and then storing it.
- Improved forecasting. The old saying garbage in, garbage out applies perfectly when trying to forecast inventory demand. If you can’t trust your inventory process, it’s impossible to accurately predict your future output. This leaves you flying blind when budgeting and preparing for future expenditures. With a firm grip on your inventory needs and procurement-to-sales cycle, your forecasting will become more accurate.
Action: Create a rolling 12-month forecast of sales. The forecast should provide details on major product lines. Translate this forecast into lead times for your inventory procurement.
- Better customer relations. Once you’ve optimized your operation, the quality of your customers’ experience increases exponentially. You can cut prices without sacrificing margin, improve lead times, and add new product lines with your extra cash. While the effective inventory process you built is humming along, you can focus your attention on improving your products to better match the needs of your target market. This will help boost your sales!
Action: Set inventory targets to shorten lead times. Measure how many backorders you have and note how often products are returned as defective. If your inventory management is improving you should see positive results in both areas.
Inventory management will not take care of itself. Giving your inventory system the attention it deserves will pay major dividends both now and in the future.
Sources: SSA.gov, 17th Annual Retirement Survey, Transamerica Center for Retirement Studies®