Why Inventory Management Is Crucial For Your Business
Firstly, what is inventory management?
In essence, inventory management is the process of managing your stock/supply of goods. You need to know how many items you have at any given time, and when it’s the right time to order more. With a good system, you should be in a position to have the perfect amount of stock at all times, never having too much or too little.
With that in mind, why is inventory management deemed so crucial for your business? Let’s find out:
Prevent frequent stockouts
Selling out of all your inventory can be both good and bad. In some cases, selling out of your items really quickly will be a great success. This is the case when you have a new product coming out and it sells out in minutes. You have clearly done a great job marketing the item as there’s a massive demand for it.
However, you can’t afford to consistently suffer from stockouts. If your items are regularly out-of-stock, it stops being a good thing and quickly becomes an issue. Why? Because it means you are missing out on sales. Consumers are visiting your site or coming to your store and are met with nothing to buy. This is particularly problematic if other businesses sell the same things as you. A consumer will look elsewhere and buy the item from a different company.
Effectively, stockouts can make you lose business if they happen too often. It also annoys consumers because you never have anything in stock. Good inventory management focuses on ensuring you manage your stock levels. Thus, you shouldn’t sell out of things quickly, and you should have new stock coming in when the current levels are low. It should create a situation where you avoid stockouts in most scenarios, ensuring you can keep making sales and making money.
Improve your cash flow
Cash flow is everything in a profitable business.
A positive cash flow means you have money constantly flowing through your business. You’re spending it, but you’re also getting back the money you spent - and more - through sales. Inventory management ensures this happens by keeping a flow of cash running through your company.
You see, when you purchase inventory, it sits in your warehouse or stockroom until it gets sold. When it is sold, your inventory turns into revenue for your business. So, if it isn’t sold, you are losing out on revenue. Essentially, you have loads of money tied up in the stock and can’t get it into your business bank accounts. As such, the cash flow starts slowing down because you have all this money that you’ve spent doing nothing.
Why does this tend to happen? Poor inventory management will mean you order too much stock at any given time. You have loads of items that are sitting there and won’t sell. This means you have wasted so much money that you aren’t getting back. Often, businesses have to try and slash the price of these items just to get them sold. You won’t make a profit on them, but you can recover some of the cash you spent.
Consequently, you need inventory management systems to allow cash to move through your business. If you purchase NetSuite - or any other software that allows you to manage your inventory - you start to learn more about stock levels. You see how much you need to purchase based on sales records and demand. Thus, you ensure that your business has the right amount of inventory at all times. There’s enough to deal with the ongoing demand and avoid stockouts, but not too much that leads to loads of cash tied up in a stock room.
Save money on inventory purchases
Similarly, inventory management will help you save a lot of money. As mentioned above, cash flow issues stem from spending too much cash on inventory that doesn’t sell. A good management system will let you know how much stock you need to purchase.
As a result, you can spend less money on inventory by avoiding overpaying for vast amounts of items. If you’re a big business with different locations, you can save even more money. You can use your inventory management software to see where your stock needs to go. Is the demand for a product higher in one location than in another? If so, you ensure that more stock goes to the popular locations.
How does this save money? It allows you to cut down on costs associated with sending inventory from one place to another. You’re running low in one location, so you have to get stock moved from another one to that one. It leads to increased transportation costs that you don’t need to pay for. Good inventory management ensures that every location has the right amount of items, reducing your expenses.
Boost customer satisfaction rates
No business is complete without a gang of loyal customers. Ideally, you want to attract new customers all the time, but you also need to hold onto your existing ones. Thus, you grow your customer base and make more money as sales increase each month.
Unfortunately, businesses lose out on customer loyalty when they provide poor experiences. Someone might order something from you, but they didn’t have a very good time doing it. The whole process was slow and it took ages for their order to be delivered.
This is where inventory management comes into play. Ask yourself, why would someone’s order take longer than expected to arrive? There could be issues with the supply chain and logistics, but the most common reason is that you ran out of stock. You no longer have the items they asked for, so you need to wait until you can get more stock in. Or, as touched upon earlier, you might need to ship it out from one of your other inventory locations, which takes more time.
Either way, you have customers that are left waiting for an order to come. Two things are likely to happen in this scenario:
The customer chooses to cancel the order after hearing that the product is out of stock
The customer waits for the order but isn’t happy about it
In both cases, you have created a bad experience for the customer. Do you think they’re going to return in the future? Probably not, especially if they went elsewhere and had a much better experience.
You need good inventory management to ensure issues like these rarely happen. You have enough stock at all times - and you also keep customers notified of stock levels. That’s a key part of inventory management that doesn’t get discussed. The right software can help you provide stock updates on your website, so customers know if things are going out of stock or not. So, it should avoid situations when they unwillingly buy an item that is no longer in stock.
Overall, you should have a system that provides better experiences for consumers. They get the items they want without waiting weeks for them. It keeps them happy, which can boost customer loyalty for your business.
Summary: Focus on inventory management in your business
In conclusion, your business should focus on managing its inventory as efficiently as possible. Thankfully, life is made easier with technology. There are loads of apps you can download that present all sorts of information relating to your inventory. The general rule is that you need to manage stock levels to ensure that you never have too much or too little. You want to avoid stockouts, but you also want to avoid having excess stock that wastes money.
