One of the company’s most significant assets is its inventory. Inputs and finished goods are the core of the business in various industries, including manufacturing, food service, and bad inventory management, which may even jeopardize the company’s long-term success. Inventory may sometimes be regarded as a liability (not in the accounting sense).
For businesses, maintaining a large inventory comes with a number of dangers, such as the risk of deterioration, theft, damage, obsolescence, or loss, in the case of perishable goods.
These factors make inventory management crucial for all businesses, regardless of size.
The management of activities necessitates knowing when to resupply specific commodities, the requirement for purchase and manufacturing, the purchase price, and the sale price, making this task hard and extremely delicate.
Companies utilize various methods, including manual controls, spreadsheets, ERP software, and, more recently, SaaS solutions, to manage inventory (Software as Service or software as a service). With automated workflows, reorder points, and a number of other essential inventory management technologies, NetSuite is a fantastic option for advanced inventory management. This is a tiny screenshot from a NetSuite item record where a customer has chosen a quantity to reorder point.
The key issues surrounding inventory management will be covered in this article, including its significance, business mistakes, and methods for preventing inventory losses, among other things.
How do you manage your inventory?
Managing product inventories, whether inputs, finished goods, or raw materials, is one of the key responsibilities of enterprises.
The ability of the business to plan for and regulate the quantity of each product at any given time is shown in inventory management. Additionally, it enables the company to comprehend its product mix and customer wants, which will identify purchasing requirements.
Stock valuation, or how much inventory is worth to the organization, is another crucial aspect of stock management.
The importance of inventory management
One of the secrets to a company’s success is effective inventory management, which strives to ensure the best stock for the activity, preventing excess or lack of inventory, and ensuring that whenever a client asks for a product, it is delivered.
Some industry professionals feel that an almost exact match between inventory inflow and outflow is desirable.
However, depending on the company’s activities, the needs change significantly during the year, necessitating it to develop a safe supply because running out of stock could negatively influence its operations.
Additionally, businesses frequently negotiate favorably with their suppliers while making significant purchases. It might be a good business opportunity, depending on the circumstances.
So that the business will be able to handle an excess or a shortage of items, it is essential to understand how the activity operates to make the best decisions for the company.
Only with effective inventory management is this feasible.
Inventory management helps the business make the best choices but also helps it avoid errors like purchasing extra things just because they are cheap.
Primary Inventory Management Techniques
Different techniques can be used to manage stockpiles. Discover more about five more prevalent styles of inventory management.
FIFO
This strategy is based on the idea that to keep the inventory from going out of date, the oldest products must be sold first. Thus the abbreviation FIFO, which stands for “first-in, first-out.”
It is one of the inventory management techniques that businesses utilize the most. This model often values the stock at the value closest to that used in the market because it will be made up of the most recently bought products. This is because the prices of stock items are constantly rising.
LIFO
LIFO method is the antithesis of the prior approach. LIFO signifies “last-in, first-out” in its acronym. In this method, the first item that must be made available for purchase is the most recently added to the company’s stock.
This inventory control strategy is not advised for businesses that deal with perishable goods. They need even more complex control strategies to prevent product loss and damage.
The Internal Revenue Service forgoes this procedure when calculating income taxes since it lowers accounting profits for businesses because the costs of goods sold are computed using the value of the most recent products. Only be employed for managerial purposes.
Average Price
This technique, also known as Moving Weighted Average, computes a weighted average to update inventory values each time a new entry of items is made.
The average is the result of dividing the total number of stock-available goods by the sum of the values of the old and new products.
Companies whose stock item values stay relatively high should use this strategy. Extra controls must be implemented to ensure that inventory is overvalued.
It’s important to keep in mind that the Ministry of Finance only accepts Average Cost and PEPS as valid inventory management techniques for the purposes of calculating income taxes.
Just in time
The Just in Time management approach was created to encourage cost-cutting. Its literal translation is “at the moment.” The stock level is kept at the lowest level necessary to satisfy the needs of the company.
Managers must strictly enforce this practice to avoid losing out on profitable sales opportunities due to a lack of product inventory to satisfy demand. One of the biggest “sins” in inventory management is this.
This approach needs the right suppliers as partners to respond quickly and frequently to demands.
ABC Curve
This management approach bases the significance of maintaining each product in stock on three key foundations. They are profitability, revenue, and turnover.
Inventory items are divided into three kinds based on these criteria:
- Items of Type A are the most significant and expensive things. Although they might not be the most numerous, these are the goods the corporation values the most, so complete control is required. These are products with a high turnover rate but significant revenue and profitability.
- Products of Type B are of medium value, hence controls not as severe as those for items of Type A are not used. Due to the fact that they are often the most numerous, it is vital to primarily control these items’ supply levels.
- Since Type C items are the least valuable to the business, it is not crucial to include too many restrictions. For instance, certain items can frequently be eliminated from rotating inventories. To guarantee that any demands are met, they must be maintained on hand in modest quantities.
Best Practices for Small Business Inventory Management
The implementation of controls and the analysis of numerous concerns make good inventory management a relatively challenging undertaking. However, there are numerous advantages, particularly for small enterprises, as increased efficiency leads to increased profitability. Check out some beneficial strategies to use:
- Perform inventories
The initial step is essential. All items in your inventory must be physically gathered before creating an inventory. You must use this process to arrange your products in the best possible way. Put them all in their respective places, separated by category. This mapping enhances the movement of inventory items and increases the agility of various procedures.
- Recording Inventory Data
Inventory data can be compiled in a variety of methods. The most popular methods include using paper and pencil manually, electronic spreadsheets, and inventory management systems like NetSuite.
The last solution will cost money, but over time it will make your business much more competitive and agile with far more sophisticated and adequate controls.
- Emphasize Each Important Point
Whatever method you use to gather your inventory data, it is essential to decide what specific data has to be gathered. Making poor decisions detrimental to your company’s financial health is possible if you cannot record information appropriately.
There is a lot of information about each inventory item that may be important for making decisions. The following ones stand out among the major ones:
- Asset control number or reference number
- Costs
- Manufacturers
- Categories
- Locations
- Validity
Furthermore, vendor-specific details like the order number and any other standards beneficial to your company (color, size, model, etc.) can be added.
Knowing how the goods move is essential for understanding your inventory, which calls for keeping track of each item’s life cycle from the supplier’s date of purchase to the sale dates, as well as its cost and selling price.
- Pay close attention to expenses and income
The term “inventory management” goes beyond merely physical control. The worth of the company’s products, as well as its turnover and profit margin, must all be taken into consideration when managing the stock for the business to succeed.
Knowing which product sells the most and which makes the biggest profits is crucial to manage inventories in this way. You must take into account the selling price of your merchandise, taking into account any applied reductions.
Greater inventory control precision is made possible by the integration of procurement and sales management in more comprehensive management systems.
With this knowledge, you can:
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- Concentrate on the most lucrative products.
- Learn which goods perform the best and worse in terms of quantity and margin.
- With correct item cost data, you can manage your discounts more effectively.
- Control Your Stock Using a Single System
It takes a lot of effort and makes mistakes easy to manage your inventory using different platforms. Everything will be considerably simpler if you select a single system to keep track of your inventories.
You may centralize information and automate procedures using:
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- A centralized inventory management system.
- minimize errors
- Keep track of all stock movement from the entrance to the sale
- Inputs used to produce your items should be under your control.
- Keep track of inventory levels.
- Keep an eye on your sales to ensure you never run out of inventory
Running out of stock is one of the riskiest issues that stores can have. Monitoring sales is an essential tactic not just for inventory control but also for business expansion.
By studying the firm’s sales history and considering the growth predictions for the economy and the sector in which it works, you can better predict your purchasing needs based on this information and ensure that the company has ordered enough for a specific period.
Review your primary offerings. Do they sell more quickly than you anticipated? You should follow a specific order. Are sales falling short of expectations? You might need to provide discounts or other payment arrangements to keep the item out of stock.
- Control your used products
Correctly managing old stock will help you avoid losing products due to expiration or obsolescence and prevent the company from suffering losses.
A great way to prevent extra production or even create plans to boost product turnover is to analyze goods with decreasing stock trends.
By using a good stock management system and the aforementioned best practices, you can keep your inventory current and, as a result, keep your consumers happy with the items’ accessibility.
Important Inventory Management Errors
Inventory management mistakes are frequent as a result of the activity’s intricacy. Learn about the common ones and how to avoid them:
Overstock Inventory
One of the largest issues businesses encounter, particularly during times of crisis, is excess inventory. Total losses result from the issue when it comes to perishable goods.
In any scenario, the corporation no longer has access to liquid funds for investment, and the investment begins to stall, making it a needless expense – not to mention the storage price.
To avoid these errors, efforts should be concentrated on more profitable goods with higher sales. Starting with a month-by-month analysis of your sales is the only way to do this correctly.
Additionally, to discover potential seasonalities, the same month last year should be compared to the current month and holiday seasons, vacations, etc.
You take various dangers when inventory management needs to be done correctly. For instance, a scarcity of products leads to frequent undetectable losses.
For instance, a situation of this nature may result in a decline in consumer confidence, pegged sales, and future sales.
Both a shortage and an excess of goods are detrimental to the business. Therefore, it’s critical to have sufficient control to ensure that none of the scenarios occur.
Problems with Seasonality
Are you aware of the demand changes at your company? Every season and time of year, the product offering must be adjusted to meet the wants of its consumers.
When your clients might be going on vacation and may not be thinking about making a purchase, you cannot make the same purchases.
The reverse also takes place. There are periods when demand dramatically increases, notably around holidays.
In addition to gathering this data, businesses must prepare carefully to avoid external issues like supplier delays.
Utilization of Subpar Inventory Management Tools
Using subpar tracking technologies is another frequent issue in inventory management.
Utilizing methods to regulate product batches and series is insufficient. To control the actual value of your stocks, you must have instruments integrated with the buying and selling areas.
Without the proper equipment, you may make a number of terrible mistakes that won’t be apparent until much later. It will frequently be too late to turn them around, and you will discover how they convert into enormous losses or expenses.
Automation of inventory control processes also reduces operational expenses and operating time.
Unavailable physical inventory
Many businesses fail to do frequent inventories because they think the amount displayed in their controls is infallible. This may result in unneeded purchasing issues or a stockout during the company’s critical periods.
How Can Inventory Losses Be Prevented?
You should first consider the primary sources of inventory losses, which are as follows:
Customer fraud
One of the main reasons for losses in retailers, for instance, is customer theft. In this regard, it is crucial that the business implement anti-theft systems, maintain them in excellent working order, and install alarms on the goods to prevent their deactivation.
Additionally, areas more vulnerable to theft, including gondolas, must be kept in mind.
Internal theft by employees
The team is also one of the reasons for unreported losses in retail businesses, whether from product theft or the granting of unfair discounts with the assistance of sales staff. Without a doubt, these circumstances lower the company’s profitability.
Administration Mistakes
Just as incorrect pricing increases the loss of profits, incorrect merchandise listings might result in a significant loss.
It is best to accurately reflect all product movements in the management system and integrate them with the purchasing process to prevent mistakes.
Errors in Goods Receiving
Suppliers could provide the wrong goods or fewer items than what was ordered. In this regard, it is crucial to include controls in the procedure for receiving items.
Breakdown or Product Expiration
Often, lost goods result from improper product storage, damage, or poor control of perishable goods.
Top Strategies to Prevent Inventory Losses
- Spending on inventory control
You must manage your inventory if you want to have a clear picture of how your sales and products are doing. Good software will track products more accurately from inventory entry to purchasing.
Additionally, it will enable you to spot disparities and provide guidance on which areas to focus first.
- Determine which products lead to the most significant discrepancies
This may require various measures, including moving the goods, imposing access restrictions, etc.
- Implement security measures
Security features like cameras or alarms prevent potential thieves while making it easier for consumers and staff to monitor possible thefts.
- Management Receipts
The first step in addressing potential inventory losses is when suppliers deliver their goods to the business. Essential details like the quantity, legitimacy, and condition of the returned goods must already be noted and recorded.
The inventory control teams can choose the optimum locations to store, distribute, and display the purchased goods based on this information, potentially reducing losses.
- Validity Inspection
The validity of perishable goods needs to be strictly monitored. In this regard, selling goods with a smaller profit margin is frequently more practical than letting them go to waste. To prevent having too many of these products on hand, manufacturing must also be adjusted to the demand.
- Regularly perform an inventory
Consolidating physical information (the stock itself) with digital stock databases, such as the company’s management systems, requires routine stock inventories (ERP, BI, others).
Routine inventory checking is the main defense against unforeseen losses, such as theft and lost items.
The stock safety strategy, which should also be a concern of the managers, can be helped by identifying and recording these instances.
- Inform Staff Members
Employees should be trained to assist them with their jobs, such as placing orders, receiving them, and correctly keeping them, as well as the repercussions of wrongdoing.
Additionally, it’s important to educate them on how to spot specific red flags, respond appropriately to theft, etc.
Create a business culture built on sound principles as well.
Worksheet for Inventory Control and Inventory Control System
One can still frequently utilize control spreadsheets for inventory, especially for small businesses. This product’s popularity and affordable price are two of its key benefits, making it accessible to practically all employees.
However, because this tool was not intended for managerial use, it has a number of drawbacks and, to some extent, may lead to managers making poor decisions.
The following are some drawbacks of utilizing spreadsheets for inventory control:
Information is manually entered.
Spreadsheets used for stock control are almost all filled out by hand, which raises the possibility of errors of all kinds. Typing mistakes, the addition of duplicate data, or even a failure to register can all be culprits.
Formula mistakes
Information from other sheets is “pulled” into many control sheets. The business may employ inaccurate data in its assessments if there is any unauthorized alteration or the spreadsheet is erased, which can result in serious harm.
Different users
Multiple employees frequently handle inventory control sheets. This method may lead to a number of issues since staff members may make unnecessary adjustments, make mistakes, and take too long to find the right information if they need to be made aware of how the tool functions.
Various versions
Another issue is that the same spreadsheet frequently has multiple iterations, and an employee might add new data to a version different from the most recent version, leading to data loss and conflicts.
Intergration with other areas is limited
As we’ve seen, proper inventory management requires more than just physical inventory control. The information must be integrated for proper judgments, especially in purchasing and sales. When spreadsheets are used, this integration becomes quite challenging.
Management Software Use
On the other hand, using software for stock control dramatically increases the activity’s flexibility, safety, dynamics, and agility. Using a quality system, you can rapidly determine the value of your inventory at the buy or sale price and how well a product is selling.
With inventory control software, you’ll be able to connect data from the purchasing and sales departments and know exactly what you need to buy and how much of each product you already have on hand. This will increase the process’s great reliability.
Managing inventory will always be difficult because many factors can get in the way, regardless of whether you use software or spreadsheets.
By explicitly automating essential operations, inventory management software can help you make better decisions and boost productivity, data reliability, and revenues.
In conclusion, taking Your Business to the next step can only come to reality if you have the right expertise to deliver outstanding solutions. At Seibert Consulting Group, we specialize in delivering modern solutions to businesses that aim at taking full advantage of the eCommerce platform. We always customize our solutions to align with Your Business’ requirements and goals. Let’s start talking about your project and find out how we can help Your Business grow. Get in touch with us via our chatbot or email athello@seibertconsulting.com and via our direct line at 760-205-5440.
FAQs
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What features does the NetSuite Customer Shipments Portal offer to businesses and their customers?
NetSuite Customer Shipments Portal: Enhancing Order Tracking for Your Business
The NetSuite Customer Shipments Portal is specifically designed to streamline the way businesses and their customers track order shipments. This efficient portal offers a variety of features that enhance user experience and operational flow.
Robust Tracking Capabilities
Firstly, the portal allows customers to view real-time updates on the status of their shipments. This transparency helps in reducing customer service inquiries and increases customer satisfaction by keeping them informed every step of the way.
Branded User Interface
Additionally, it boasts a customizable interface that can be tailored to match your company’s branding. This feature not only enhances the aesthetic appeal but also promotes a consistent brand experience for users as they navigate through the portal.
User-friendly Design
The portal is designed with usability in mind, ensuring that it is easy for customers of all tech-savvy types to navigate seamlessly. This ease of use ensures that all customers, regardless of their tech proficiency, can utilize the portal effectively.
By integrating these features, the NetSuite Customer Shipments Portal provides a dynamic, efficient, and user-friendly order tracking solution that benefits both businesses and their customers.
