Small Business

Optimizing Inventory Management: The Key to Unlocking Business Growth and Profitability

May 24, 2023

Proper inventory management is critical for any business dealing with physical stock. Here are some useful tips for improving your inventory management process.

In today’s world of business, where technology is advancing, strategies are evolving, and consumer needs are ever-changing, one critical aspect that is often overlooked is inventory management. Often, small businesses find themselves in the dilemma of either stocking too little inventory or overstocking, which brings about cash flow challenges. This may potentially push the business to operate at losses or, in severe cases, face the risk of dissolution.

The Importance of Inventory Management

Therefore, for your business to thrive in this dynamic market, improving inventory management is imperative. Effective inventory management is not just about having products on the shelves, it's about precision — having the right products available when needed, in the right quantities, and at the right cost. This ensures your business is able to meet its delivery obligations promptly while safeguarding against financial strains.

In this article, we’ll delve into some of the top techniques for improving inventory management and share essential tips to enhance your approach. These insights will help ensure your business adapts quickly to changing market trends, all while streamlining operations and optimizing costs.

Tips for how to improve your inventory management system

Improving inventory management is crucial as it influences everything from customer satisfaction to overall profitability.

The tips below are easy to implement and can help your business establish a comprehensive inventory management improvement plan.

1. Prioritize your inventory

As a small business owner, you need to focus on your best-selling items and understand your ideal ordering quantities and frequency. This helps you categorize your inventory as per popularity and demand. Prioritizing ensures that popular products are always available while enabling efficient allocation of resources.

According to business experts, there are several ways you can classify your inventory, the ABC analysis being the most common one:

  • A group: Items in the A group are higher-value items that account for a significant portion of the revenue. These items are not frequently bought; therefore, you need fewer of them.

  • B group: The B group consists of items in between. In-between items are usually moderately priced items that are sold more slowly than C items but faster than A items.

  • C group: Items in the C category are lower-cost items. Low-cost items normally refer to products with a low price point and sell quickly.

2. Track all product information

Maintaining a comprehensive record of product details within an inventory management system is one of the best ways to improve inventory management. It acts as a road map to smart decision-making and helps in accurate forecasts. The information that should be kept includes:

  • Stock Keeping Units (SKU)
  • Barcode data
  • Supplier’s data such as name, location, type of products supplied
  • Costs and pricing
  • Sales history
  • Countries of origin
  • Lot numbers

These product details are essential in streamlining business operations. For example, keeping track of the cost of each item gives insight into the different factors influencing pricing, such as seasons like holiday periods. This information allows you to adjust prices and stock based on the market dynamics.

3. Conduct regular inventory audits

Conduct regular audits on your stock levels to identify discrepancies early, ensuring your inventory matches what is in the inventory software. The frequency of comprehensive inventory counts varies across businesses, ranging from weekly, monthly, bi-annual, and even daily for quick-selling products.

At the end of the day, the aim of a comprehensive audit is to reconcile physical inventory with the software records. To Analyze Inventory on a Balance Sheet, adhere to the best practices outlined in this article.

4. Analyze supplier performance

Assessing your supplier’s performance is a crucial aspect of improving inventory management. Does your supplier deliver on time? Does your supplier deliver goods in good condition, or do you find yourself dealing with delays or damaged goods? It is important to ensure your suppliers can deliver inventory at the required time and in good condition.

An unreliable supplier can cause problems for your inventory, often resulting in customer frustration. When this happens, you need to have a sit down with your supplier(s) and have a discussion to figure out where the problem is and set clear expectations. If they are not showing signs of changing, you should switch suppliers before it is too late.

5. Embrace the 80/20 inventory rule

The 80/20 inventory rule, also known as the Pareto Principle, can significantly improve inventory management for your small business. This principle states that 80% of your revenue or profit is from 20% of your inventory.

Essentially, a small portion of your inventory is responsible for much of your business’s financial success. Therefore, you should prioritize the 20 percent of your stock. To manage this 20 percent, you need to understand their sales cycles and monitor them closely.

6. Standardize stock receiving

Creating a consistent process for receiving and storing stock is crucial to inventory management. A standardized process minimizes errors, enhances operational efficiency, and ensures your team is on the same page when handling inventory.

If you are not careful, errors during this activity may leave you with shortages that do not align with your numbers at the end of the year. Ensure all stock is verified when received, stored together, counted correctly, and cross-checked against the order given.

7. Track sales data

While it may seem obvious, monitor what’s moving off the shelves and what's not. Tracking your goods gives you a clear understanding of your inventory dynamics. This data helps you make informed adjustments to stock levels and understand customer preferences, ultimately enhancing your overall inventory management strategy.

8. Invest in inventory management technology

Invest in real-time inventory management software that automates tracking, ordering, and reporting. This investment reduces manual errors, enhances efficiency, and provides real-time insights into your inventory, a key aspect of any inventory management improvement plan.

There are various types of inventory management technology, including barcode scanning apps, Inventory Management Software, and POS (Point of Sale) Systems, that can help you stay on track.

For instance, Britecheck’s mobile-based inventory management system with barcode scanner offers several benefits, including:

  • Real-time visibility: a barcode scanner gives you a clear insight into your stock levels in real-time. You’ll know exactly what you have and when you’ll need to restock.

  • Data-driven decision-making: It provides insight into your inventory. By analyzing the data, you can identify trends and make better decisions, ranging from forecasting demand to optimizing stock levels.

  • Reduced cost: a barcode scanner prevents both overstocking and stock-outs, resulting in minimized waste, ultimately saving you money in the long term.

  • Increased efficiency expedites some processes, such as stock counts and order fulfillment, saving time for your team.

  • Accurate tracking: you can easily track items from the time they enter your inventory to the final destination, giving you better control over product recalls and expiration dates.

9. Back-Up Your Data

Backing up data is a crucial step in your inventory management system. A backup system ensures you safeguard your critical inventory information, such as sales history and inventory receipts.

In case the system fails, a backup system ensures business continuity as it allows you to recover essential information quickly. This contributes to the reliability of the overall inventory management system.

Choose the best inventory management software for your business

Improving your inventory management is one of the most reliable ways of boosting profits in your business. To achieve this, you need to come up with a plan on how to improve the inventory management process for your small business, and one effective approach is the implementation of inventory management software.

The key to business efficiency depends on choosing the best inventory management software. Consider factors such as business type, scalability, and budget to make the right choice. Moreover, explore options that offer features like cloud backups and mobile accessibility.

Staying informed of the movement of items in your inventory is indispensable. Start your inventory management process with a specialized tool like Britecheck. This tool not only streamlines your inventory management process but also contributes to the overall improvement of your business operations.

Sign up for Britecheck’s exclusive Webinar and learn how you can take your inventory management process to the next level with Britecheck Inventory Management Software.