What is Inventory Management?
Inventory Management is the process of managing and tracking items. It is the way to identify which products are selling and which aren't. It lets you know what items you have, what you need, and when you need them. It helps the business to control all stocks within the company.
Here are the best practices in managing inventory for your small businesses.
1. Keep Integrated POS System
Point of Sales (POS) Systems manage the whole checkout process including from the barcode scanning to payment procedures. Backend management elements like inventory and analytics are also included in the POS system.
Modern POS systems are entirely digital, allowing you to check out a customer from anywhere. All you need is a POS app and a device that can connect to the internet, such as a tablet or phone.
Some systems also contain tools for managing online orders, such as creating shipping labels and tracking orders for curbside collection. Advanced inventory capabilities in the top POS systems help you manage purchase orders and estimate product demand. If you need to keep track of inventory in a particular location, a POS will help.
A good POS System can track the following data in real-time:
- Product description( i.e., category, size, color, etc.)
- Name, price, and quantity of product sold
- Date and time of sale
- Customer information
- Product Code (UPC, SKU number, etc.)
- Suggested retail price/MSRP
- Supplier's contact information
- Minimum stock levels
- Shipping details (if applicable)
2. Create and Submit Accurate Purchase Orders
Purchase orders (PO) are the most basic way to keep all of every stock you buy when you place the order when you receive the shipment and pay the bill. These are financial transactions, so make them when you have the opportunity to examine your cash flow and predict your stocks' requirements realistically.
Purchase Orders are often sent to the supplier via email or through the supplier's online ordering portal. Low stock notifications are also available in POS systems, which notify you when an item has common stock and convert it into a report that tells you what things you need.
After creating it, the buyer will send it to the seller. The seller determines whether or not to accept a purchase order. But once an order is received, the seller has agreed to sell the mentioned products and quantities at the buyer's price.
Then, the seller sends the buyer an invoice based on the purchase order.
3. Proper Inventory Receiving Practices
Creating an organized way of receiving inventory is the best way to have a successful list. If you ruin it in the first place, everything else will fail. We'll show you the seven ways to make the receiving inventory process smooth-running and effective.
- Ensure that you receive all of the shipment's boxes, containers, or other pieces.
- Unpack the package and sort the items by product.
- Check the items and compare them to your purchase order.
- Receive the PO in your POS if the counts and products match. You can also make changes to stock counts in your spreadsheet or manually manage the inventory system.
- Note any mistakes you see on your PO, such as incorrect information, shortened, or missing items, and contact your supplier right away to resolve them.
- If your system requires it, shelve or store all correctly received stock first, then tag or label it.
- Record your bill in your accounting software.
If the supplier makes an error when entering the order, their packing slip will match the shipment but not your PO. You'll think you received stock that didn't come if you don't check the received items against your PO. It will eventually lead to stock shortages, backorders, and cash losses. Comparing the packing slip and invoice to the original PO might also help you detect a mistake.
4. Tag and Label Inventory
There are two reasons why tagging and labeling your stocks are essential to your inventory control. First, price tags and labels display the product's price to shoppers. Second, barcode labels aid inventory management and speed up the checkout process.
When scanning the code, it automatically links the products to the sale or counts and adjusts the on-hand stock levels and sales data, barcode labels speed up the checkout process, and human Inventory counts. Barcode software, including labeling and scanning, is also supported by the majority of POS systems.
Regardless of the sort of labels you choose, the stock receipt process is an excellent time to tag and label goods. These guarantees that the task is not forgotten and that unlabeled product is not shelved or displayed for sale.
Labels can be attached to hang tags or straight to product packaging once they've been printed. Some merchandise may be pre-labeled with manufacturer's bar codes, which you may track in your POS as well. In that scenario, your task will be simple. All you have to do now is add a price label.
5. Physical inventory regularly
Physical Inventory counts can be time-consuming and inconvenient. Physical counts, on the other hand, can drastically reduce all forms of inventory issues. Even if you use a POS system, it's a good idea to perform smaller partial inventory counts, even if you complete a full inventory count once a year for tax purposes.
- Annual inventory counts - You're more likely to discover shortages owing to miscounts, missing products, and receiving problems if you only undertake inventory counts once a year. Most of these problems will be too late to repair before the end of the year.
- Cycle counts -Cycle counting is a popular inventory counting method that allows companies to count many items in different warehouse regions without relying upon the entire inventory.
- Inventory Count process - start every physical count with your current QOH (quality on hand). According to whichever inventory management system you're using, this is the amount you should have in stock for each item you sell. Because stock counts are kept on a rolling tally, calculating your QOH for each item is simple:
Previous QOH + Receiving Inventory - Sold inventory = Quantity on Hand (QOH)
6. Keep your Stockroom and Warehouse Organized
Whether you have a smaller stockroom in the back of your store, keeping track of your inventory is key to intelligent management. Even if you operate in a remote location, having organized overstock space allows you to take advantage of bulk wholesale purchase discounts and bargains. Using tall storage shelves or double-tier hanging racks in retail businesses can increase storage space along walls while still allowing access to stored goods.
Whatever technique you use to keep goods, make sure it's well-organized, clearly labeled, and easily accessible for pulls and inventory counts. It can be accomplished with the boxes that things arrive in, stacking containers, or hanging dividers for hung clothing. Overstock cycle counts are also useful for keeping track of excess inventory and ensuring that it is not lost or misplaced over time.
7. Prevention of Inventory Shrinkage
Shrinkage is when the number of products in stock is not compatible with the recorded list. In addition, discrepancies may occur due to items damaged or lost, clerical errors, and theft. That's why tight inventory control should be your first line of defense. You're unlikely to notice shrinkage concerns unless you have precise inventory counts and appropriate inventory management processes.
With training, monitoring, and reporting, you'll be able to recognize and combat theft-related retail shrink once any administrative and receiving issues have been resolved.
How to prevent shrinkage?
- Implement inventory management procedures and ensure that receipts, cycle counts, and damage tracking are handled correctly.
- Use a POS System with advanced inventory features.
- Conduct regular cycle counts.
- Prevent checkout errors by using barcode labels. It also speeds up cycle counts.
- Use First-in, First-out Inventory management (FIFO). Keep new arrivals hidden behind older items since packaging deteriorates and fades over time.
- Receive shipments quickly and accurately.
- Remove damaged items from inventory counts. It's essential to update your stock count fast and then dispose of the item.
- Automate receiving tasks, daily stock reports, and low stock alerts using your POS system.
- Train your employees to be alert for signs of theft.
How to calculate inventory shrinkage?
The formula for calculating inventory shrink rate is as follows:
Inventory Shrink Rate = ((Recorded Inventory - Actual Inventory) / Recorded Inventory) *100
Your retail shop has $10,000 in the inventory listed in your POS system. You and your team undertake a physical count and discover $9,700 in stock. It is your actual inventory.
Inventory Shrinkage = $10,000 - $9,700 = $300
So you've lost $300 in inventory due to shrinkage. Let's determine the shrink rate, which helps predict, benchmark, and apply trends:
Inventory Shrink Rate= (($10,000 – $9,700) / $10,000) * 100 = 3%
Inventory Shrink Rate = 3%
Inventory management is a crucial factor in the business world, particularly in the retail industry. The stock management system or product inventory can even reveal how professional a retail business is. Consider what would happen if a customer's essential items were unavailable due to out-of-stock conditions, and this happened regularly. Of course, this will have an impact on the store's image development.
Follow the basic techniques above, and your small business will soon be running an effective inventory management system. Whether you are going to start a business and looking for ways to manage inventory or already have an existing one that has become disorganized, these concepts and ideas will help your business save a ton of money.