Question

Provide 4 ways strong inventory management saves cash for the company.

Answer 1

4 ways of Inventory Management that saves cash for the company :-

1. Know Your Par Level

Customers place orders but you happen to have depleted your stock. As a result, you inadvertently push them away, creating business for your competitor! That’s money lost, simply because you do not have the requested product in stock.

Par level refers to the minimum amount of stock you should have at any point in time. The aim is to maintain stock levels above a pre-set minimum. Although this level is best established through experience, the minimum stock should be sufficient to see you through the dry period – the time between order placement and delivery. A good inventory management software can help you establish your par level and promptly place orders, particularly when you’re selling different products.

2. Forecast Demand

Par levels go hand in hand with demand forecasts. To establish the amount of stock you need over the next week, month, or even year, you’ve got to have near-perfect forecasting skills. Of course, it’s impossible to perfectly predict demand, but there are several metrics that can be very useful on this. You can use trends in the market, cyclical events associated with a surge/drop in demand, sales from last year during the same month, or even your planned ad spend.

The best way to hone your forecasting skills is perhaps to invest in a good inventory management system. Otherwise, it would be really difficult to deduce trends from data stored manually. The best inventory management software today can present such data in easy-to-understand formats, such as bar charts and graphs.

3. Implement the First in First Out Rule

The first items to hit your store or warehouse should be the first to sell. This is an old but effective inventory management rule. So, why not sell the newest inventory first?

Older stock is generally more susceptible to wear and destruction. What’s more, quality often worsens with time. Sometimes changes in design can force you to hold products that are no longer in demand. We’re living in a world of trends where preferences can change without much of a notice. As such, older items may end up fetching much lower prices than they would in different circumstances.

To help you ship out old stock efficiently, you should aim to place items in the warehouse in the order of arrival, where the newest ones stay at the front, and relatively newer items take ‘backstage.’ Working with an inventory control software like DataQlick can help you to stay organized and keep track of inventory movement.

4. Consider Automation

Gone are the days of manually recording every transaction in pen and paper. Nowadays, small business owners make sales records and track shipments in just a few clicks. You do not need to hire multiple data entry clerks to do daily reconciliations. Instead, invest in a sales and inventory software that automatically keeps all relevant records.

Manual record keeping becomes even messier in the presence of multichannel management. If you sell across multiple storefronts such as Amazon, eBay, Shopify, and others, you need an inventory system that does most of the accounting for you, and in real time.

Automation is central to the success of most of the tips outlined here.