The effectiveness of your inventory management can dictate the success or failure of your business.
In these difficult economic times with companies facing uncertainty and challenging market conditions, it’s more important than ever that you’re taking advantage of software rather than trying to manage your inventory and stockpiles with spreadsheets.
Read this article to discover what you can do to improve how inventory is managed at your business and why it’ll result in you managing things more effectively.
What is inventory management?
Essentially, managing inventory covers purchasing, storing and then using or selling items.
These might be raw materials, manufacturing components, semi-complete products that are awaiting their final parts, or finished products that are waiting collection and delivery.
Running out of inventory means disappointing customers or delaying manufacturing processes because parts aren’t available yet.
On the other hand, have too much inventory and you’ll find yourself tying up capital in unused stock.
You’ll also have to pay to store it, protect it, and insure it, and you’ll run the risk that it will reach the end of its shelf life before you’ve managed to use it or sell it.
Dealing with inventory challenges
It’s to avoid the second of these challenges while satisfying the first that over the past few years many companies, including small and medium enterprises, have adopted a Just in Time (JIT) delivery model.
This keeps inventory low but means that it must be well managed.
According to a recent survey in the US, over half of those asked (58%) cited inventory management as the top technical skill required by supply chain professionals.
Coronavirus (COVID-19) has made effective and more sophisticated and responsive management of inventories more important than ever.
As management consultancy Deloitte notes in a recent report: “Companies that still use simplistic approaches to inventory management might be able to do a quick assessment and find some immediate opportunities to drive down inventory.
“However, many companies are likely to find that significant inventory cuts have an adverse effect on customer service and production.
“Sustainable savings will most likely require fundamental improvements in end-to-end supply chain inventory visibility, demand planning, inventory and safety stock policies, production planning and scheduling, lead-time compression, network-wide available-to-promise, and SKU (stock keeping unit) rationalisation.”
Inventory is the biggest expense – and the greatest liability – for many businesses.
How well managed it is and how quickly and efficiently items are moved from storage to where they’re needed tells you a lot about how well your business is run on a purely practical level.
Knowing your inventory position allows you to plan and forecast more effectively.
Problems with using spreadsheets to manage inventory
Because of its cost and complexity, digital inventory management was once the preserve of larger companies but now prices are falling and systems are becoming more adaptable thanks to the growth of cloud computing.
There are a number of reasons why the traditional spreadsheet is less effective than cloud computing technology.
With spreadsheets, information needs to be inputted manually.
Not only does this take time but errors are more likely to be made than they are with automated systems, and spreadsheets are much less likely to be up to date.
Cloud accounting software shows inventory levels in real time.
If you’re using spreadsheets, as your business grows, you’ll need a greater number of them and you’ll need to ensure they’re all coordinated with each other.
It’s more difficult to share relevant information quickly and safely from spreadsheets both internally as well as with suppliers and other organisations.
How cloud software can help with inventory management
However, effective inventory management software can offer much more.
It can do the following:
- Tell you how much specific items in your stock are costing you.
- Monitor items arriving and leaving in more detail than would be possible with traditional spreadsheets.
- Connect to other technology. This might mean using QR codes and bar codes and even sensors that provide real time information about the movement of inventory.
- Help you prioritise your stock, so you can understand what you have to order more of and do so more frequently.
- Show you the balance between high-ticket items that are sold less frequently and those that are less expensive and account for most of your volume.
- Standardise how you receive stock, so staff members handle it consistently and tick all the necessary boxes.
- Allow you to see what’s out of stock, so you can reorder the right quantity quickly and easily.
It’s important to look for a system that will allow you to perform other related tasks such as sending invoices. You should also be able to differentiate stock, non-stock and service items with a couple of clicks.
Technology enables you to offer varying customer pricing with discounts for your best customers, too.
Whatever your stock, it’s important that it’s categorised properly. Some items might sit in a particular category and the better you can differentiate between sizes, colours, prices and other varieties, the better your knowledge will be of your stock.
You might have large quantities of a particular item, for instance, but do you know how many of these items on your shelves fit into the small categories and how many are extra large? How aware are you of what sells when?
Another advantage of accounting software over spreadsheets, as a growing number of small businesses are discovering, is that you can see the value of stock you’re holding, that is incoming and is outgoing in real time.
You can instantly see your sales figures for any given period and respond accordingly.
Crucially, cloud-based technology means your whole team can have instant, real-time access to your latest inventory details whether they’re sales people, purchasers or managers.
This is the case whether they’re in the office, in the warehouse, on the road, or, as is increasingly likely these days, they’re working from home. Apps allow anyone within your company to check on inventory through a desktop, a laptop or even a smartphone.
Making the move towards better processes
It’s important when you begin to introduce software that has inventory and stock management capabilities to ensure you have buy-in from all staff.
This means training them but could also include identifying one or two champions, people who work close the ground who can answer colleagues’ questions and promote the use of this new technology on a day-to-day basis.
Coronavirus has turbocharged many trends in business and the move towards the use of cloud accounting software for better inventory management is one of them.
As consultancy Bain & Company puts it: “The opportunity to create value in this chaotic time lies in finding ways to add balance to your supply chain, focusing efforts on three essential characteristics: resiliency (inventory in the right place at the right time), visibility (a clear, technology-aided view of dependencies from one end of the chain to the other) and simplicity (focused product lines and a culture of ongoing waste reduction).”
Conclusion on effectively managing your inventory
Managing your stock levels effectively is an important consideration for your business. As highlighted above, having too much or not enough of your products can result in a loss in revenue and profits.
If you can’t easily see how much inventory you have, that can hold you back. And if you’ve got to spend time perusing spreadsheets – which could be out of date – you’ll lose time and money.
Putting the right processes in place so you can effectively manage your inventory will mean your business can work smarter and ultimately be more successful.
With its provision of accurate and real-time information, flexibility, and the detailed view of stock that it offers, cloud-based software is essential for your business to grow and become more profitable.