Inventory management is a crucial aspect of any eCommerce company, and merchants that fail to establish a solid foundation for tracking their inventory with an inventory management system can face significant problems.
Having an organized and clear idea of inventory will help you prevent loss from spoilage, returns, and misplaced items, optimize fulfillment, reduce overall inventory costs, and pave the way for improved customer service.
Considering the fact that most inventory discrepancies are caused by human error or flaws in inventory control procedures, using inventory management software is a must. If you’re using Shopify, the platform already has a built-in inventory management system. However, you can also choose a specialized Shopify inventory management tool that will help you sell, pick, and ship faster to make sure that customers have the best possible experience.
Regardless of what system you decide to use, these 6 techniques will help improve your inventory management—and boost your cash flow.
Image source: Unsplash
1. Predict Demand Accurately
Good inventory management is closely connected to accurate forecasting. This is not easy to do as there’s a great number of factors and variables you need to take into consideration. Of course, you can never be 100% sure of what’s coming, but you can try to get as close as possible. Some of the things to consider when predicting future demand include last year’s sales during the same period (week/month), this year’s growth rate, market trends, overall economy and seasonality, guaranteed sales from subscriptions and contracts, planned ad spend, upcoming promotions, etc.
2. Have a Contingency Plan
There’s a number of issues that can come up related to inventory management, and if you are not ready, they can seriously harm your business. For instance, maybe you’ve miscalculated inventory and ended up with less product than you actually need or a slow-selling item takes up too much storage space. You could be short on cash and can’t pay for an item you really need or sales increase unexpectedly and your stock is oversold.
Problems will arise, it’s just a question of when, and that is why you need to have a contingency plan. What action will you take if any of these things happen? How will it affect your business? What steps will you need to take to fix the problem?
3. Invest in Good Relationships
Having good relationships with your suppliers is also a key part of a good inventory management system. Whether you need to restock a product that sells like crazy, return one that doesn’t sell well, or fix manufacturing issues, you’ll need suppliers that are willing to help you solve your problems.
A good relationship more than just being friendly – it is about clear communication. Make sure to inform your supplier when you are expecting increased sales so they can adjust their production, or ask them to let you know when an item is running behind schedule so that you can look for a substitute or pause the promotions for that item.
4. Set Par Levels
Setting par levels means assigning a minimum amount of stock for a certain product. If the stock falls below that level, you’ll know that it is time to reorder the item.
Par levels vary from product to product and are based on how fast an item sells, as well as how long it takes to restock them. Remember, you should reevaluate your par levels on a regular basis in order to make sure the amounts are aligned with your current demand.
5. Set Aside Safety Stock
Safety stock is considered to be an additional quantity of a product set aside in order to reduce the risk that the item will be out of stock, damaged, or in case the supply chain gets disrupted.
In general, once you are forced to start using your safety stock, the inventory management system should serve reminders that you need to reorder merchandise. When it comes to what percentage of inventory should be safety stock, typical goals fall between 90%-98%. In addition, units with greater value to the business should have more safety stock, and vice versa.
Image source: Unsplash
6. Conduct Regular Audits
In general, you will be relying on your inventory management software and warehouse reports to find out what you have in stock. But it doesn’t hurt to ensure that the numbers match the actual state from time to time. Here are a few ways to do this:
- Physical inventory count is basically counting all your stock at once. Most businesses do this at the end of the year because it concurs with filing income tax and accounting.
- Spot checking. Instead of doing an entire physical count at the year’s end, consider spot checking different portions of the inventory at a time. Spot checking is usually done in addition to physical inventory and can be used for fast-selling or problematic items.
- Cycle counting is used by some businesses instead of full physical inventory. With cycle counting, a small subset of inventory is counted on a specified day, week, or month.
Remember, having an effective inventory management system in place can help simplify your day-to-day work and always keep you one step ahead of the game. On top of that, by implementing one, you reduce costs, analyze sales patterns, and predict future sales. With the right inventory management software, your business can maximize its operating efficiencies and profits, and stay ahead of the competition.
Choose the right inventory management techniques for your Shopify store and start implementing them today.