Ever feel like you're playing a constant guessing game with your inventory? Too much stock ties up cash, while too little means lost sales. It's a delicate balance and getting it right can be the difference between struggling and thriving. If you’ve worked with me in the past or have read any of my articles, you’ll know that inventory management is my favorite topic. I know, I’m a weird duck. Trust me, you wouldn’t be the first to raise an eyebrow when I tell people that. Nevertheless, regardless of how boring inventory management can be, never forget that every widget you have sitting on a shelf waiting to be sold is cash money locked in a lock box that can only be unlocked with a sale. It is absolutely required that business owners know, understand and manage their inventory!
Let's dive into five inventory and supply chain management strategies that could revolutionize your small business operations.
Embrace Just-in-Time (JIT) Inventory: Less is More
Keep Your Shelves Lean and Your Cash Flow Healthy
JIT inventory isn't just for big manufacturers. Small businesses can reap huge benefits from this approach too. There is no need to keep every last possible widget on the shelf waiting to be sold if your demand is constant and your supply chain is dependable (or at least, predictable). Instead, you can stock your shelves with minimums to serve your customers. Don’t forget though, doing this requires data to be able to determine what those minimums are based on historical averages.
And therein lies the rub and where JIT breaks down; its Achilles’ heel. If your supply chain is unpredictable or your customer demand is unreliable, JIT becomes a more complicated solution. It absolutely is still worth managing your inventory in this way, and there are techniques to control from an unpredictable supply chain, but implementing JIT without those controls can be a risky proposition.
JIT Implementation Tips:
Forge strong relationships with reliable suppliers
Use historical data to forecast demand accurately
Implement a robust inventory tracking system
Be prepared with contingency plans for supply disruptions (think Safety Stock and alternative vendors)
Pro Tip: Start small by applying JIT principles to your fastest-moving items first.
Leverage Inventory Management Software: Your Digital Stock Assistant
Say Goodbye to Spreadsheet Headaches
It pains me to say it, but it IS possible to manage inventory without using Excel. Trust me, I LOVE excel. I always tell people that, if you know the right formula, it can launch the Space Shuttle if you want it to. And, if you’re on a budget and bootstrapping, Excel will still answer the mail in terms of managing inventory.
However, there ARE modern inventory management software packages out there that can give you real-time insights and automate tedious tasks. Some can be a bit pricey so, of course, due your due diligence. That being said, (and you’ve heard me say this before), QuickBooks Online can be a great solution here.
QBO is not just accounting software. In addition to financial analysis and automating accounting tasks, it can also help you manage inventory and even track Reorder Points, etc.
Key Features I Look For:
Real-time inventory tracking
Automated reorder points
Integration with your POS and accounting systems
Reporting and analytics capabilities
Popular Options: Sortly, inFlow, or Zoho Inventory are some options; QBO is my preferred solution.
Implement ABC Analysis: Focus on What Matters Most
Not All Inventory is Created Equal
ABC analysis helps you prioritize your inventory management efforts based on item value and turnover rate. I have used ABC inventory analysis in the past and I can tell you that I absolutely love the insights it gives you.
As I mentioned a million times before, Inventory management is key to a business that maintains inventory. And when I say this, many business owners believe that every last item in their inventory must be tracked to 5 decimal points. ABC analysis tells you that this is not necessarily true.
Instead, ABC analysis allows you to prioritize and pay attention to those items that are the highest value. Remember when I said inventory represents cash tied up? If that’s the case, you should pay MORE attention to where MOST of your cash is tied up (A) and LESS attention to where the LEAST amount of cash is tied up (C). Remember, there are only 12 hours in a given day, you have to prioritize somehow. ABC analysis allows you to do exactly that.
ABC Analysis Breakdown:
A Items: High value, high priority (20% of items, 80% of value)
B Items: Moderate value and priority
C Items: Low value, low priority (80% of items, 20% of value)
Action Step: Conduct an ABC analysis of your inventory and adjust your management strategies accordingly.
Optimize Your Supply Chain: From Source to Sale
Create a Seamless Flow of Goods
A well-oiled supply chain can reduce costs, improve customer satisfaction, and give you a competitive edge. This is another example of working ON your business instead of IN it. Just like you should be constantly tweaking your marketing, constantly improving your website and always shaving costs on your operations, so too should you be always assessing your supply chain aiming to improve its performance.
Supply Chain Optimization Strategies:
Map out your entire supply chain
Identify and eliminate bottlenecks
Consider drop-shipping for certain products
Explore local sourcing options to reduce shipping times and costs
Embrace Demand Forecasting: Predict the Future (Sort Of)
Turn Data into Dollars
Accurate demand forecasting can help you make smarter inventory decisions and reduce excess stock. I’ve spoken about analysis various times in these articles and Inventory Analysis is right in there with other domains that require analysis for decision-making.
As an efficiency expert, I can tell you that so much money and time is wasted from inefficient processes, and inventory management is one of those processes where money is just washed down the drain. Worst of all? Those wasted dollars are invisible! You don’t even realize you’re wasting money.
One way to avoid wasted dollars is to use robust forecasting methods to manage your intentory. I particularly enjoy running statistical analysis to predict demand. Under normal circumstances, I can achieve a 95% accuracy rate when doing this sort of analysis. Question: How much money do you think you could save if you could predict the future with 95% accuracy?
Demand Forecasting Techniques:
Analyze historical sales data
Consider seasonal trends and external factors
Use statistical forecasting models
Incorporate customer feedback and market trends
Tools to Try: Netstock, Demand Works, or build your own models using Excel or Python. If you’d like assistance in creating a statistical model of your demand, please reach out for a free discovery call.
Bringing It All Together
Remember, effective inventory and supply chain management isn't about having the most stock or the fanciest software. It's about creating a system that keeps your business lean, agile, and responsive to customer needs. By implementing these five strategies, you're not just managing inventory – you're setting the stage for improved cash flow, higher profits, and sustainable growth. Ready to take control of your inventory and supercharge your supply chain?
Sincerely,
R. Altomare
Founder, BreathEasy Business Coaching and Consulting
The Shameless Plug
If you'd like to learn more about this and other key topics that help you manage your business efficiently and successfully, may I recommend The Tradesman's MBA? It covers all the topics you need to operate your small business effectively and efficiently. Planning, Strategy, Finance, Accounting, Inventory Management, Marketing and Project Management are all covered to help you avoid costly mistakes.
And, if you'd like to learn how BreathEasy Business Coaching and Consulting can help you lower your costs and keep more money in your pocket, please fill out the contact form on the homepage and I'll reach out within 2 business days to discuss your particular challenges.
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