4 Steps to Healthy Inventory

Inventory health is a good indicator of a company’s financial well-being. Unbalanced inventories lead to company chaos in the form of far too much inventory, or not enough inventory to restack shelves – both of which can be devastating to a companies incoming revenue. Monitoring with inventory software for small business is a proactive approach to identify what areas need improvement.

At this point, you may be asking yourself, “What is a healthy inventory?” The answer, unfortunately, is “it depends on your business.” A variety of factors lead to good inventory management including continual analysis of supply and demand and inventory turnover.

Once you have determined the ideal inventory level for your organization, here are four inventory management techniques to help you keep your inventory at a healthy level.

1) Instate an Inventory Team
Do you currently have one person in charge of deciding how much product you need to order? Instead, consider creating a team dedicated to making purchasing decisions. A person from marketing would be a valuable addition because they know about upcoming campaigns that could lead to a demand for supply. External factors have an effect on inventory levels and should be reflected when placing an order. For example, an automotive lighting company in Ohio relies on a cross-functional team consisting of people in a variety of roles including, purchasing, production planning, logistics, and sales to occasionally review obsolete inventories.

2) Pause Before You Order
Deciding how much product to purchase should not be a guessing game. Ordering too much means that excess inventory is left sitting in a warehouse taking up space – increasing carrying costs. Not ordering enough could mean running out of inventory when demand is high. Instead of ordering the same amount each time out of habit, take some time to examine previous months and see if changes need to be made to your routine order to avoid issues.

Think about inventory in terms of weeks of supply to better evaluate how much is needed at a given time. Take the time to determine what future events will affect your supply; based on that analysis and the inventory used in previous months, order only the necessary amount of inventory. By ordering this way, you will experience faster inventory turnover and prevent a build up of dead inventory.

3) Excess Inventory Plan of Action
In an episode of CNBC’s, “The Profit,” Maarse Florists—a featured business on the show—had no method in place to know their inventory levels, which resulted in excess inventory sitting around a cluttered store. The host of the show, Marcus Lemonis, shared with them that “if you have inventory sitting around for years, it’s just like burning money.”

If inventory can’t be moved as originally intended, a plan is needed that lays out how this extra inventory will be handled. Excess inventory causes several problems for companies, including occupying business funds that the organization could use in other ways, such as marketing or R&D.  Ideally, you want to sell excess inventory to suppliers or incentivize your sales team to sell the extra to customers. However, if that isn’t possible, excess inventory can be eliminated by offering a Buy One, Get One Free discount or by giving it away.

4) Implement an Inventory Control System
After you have purchased items, an inventory control system can help you accurately count and manage them. Gaining visibility and control of your inventory levels helps to reduce write-offs, eliminate stock-outs, and diminishes time spent searching for inventory. Amarillo National Bank, the largest family owned bank in the nation, ordered about 150 inventory items for use at its branch offices and departments. Their ordering and fulfillment processes were managed by Excel spreadsheets, which led to wasted time, errors, and tens of thousands of dollars in inventory write-offs each year. With an inventory control system in place, Amarillo National Bank was able to slash its inventory write-offs to just a few hundred dollars a year, saving tens of thousands of dollars.

Implementing these tips will help you maintain a healthy inventory status and, ultimately, help your business run more smoothly and efficiently. For additional ways to help your business be more productive and profitable, visit the Wasp website for small business solutions including inventory software and asset tracking.

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Paul Trujillo

Paul Trujillo

Paul Trujillo is a Product Marketing Manager at Informatics specializing in Inventory Warehouse Management and Supply Chain product lines. His nearly 15 years of experience has put him at the forefront of industry technology and developing trends.