Inventory management is an essential part of business, and getting it right can give your cash flow a real boost. Here is a look at three techniques that can make a big difference.
First In, First Out (FIFO)
When you make an effort to sell your oldest stock first rather than your newest stock, you can ensure nothing goes past its sell-by date. However, it’s even useful for non-perishable goods because it ensures that packaging always looks fresh and modern rather than getting worn out from sitting at the back of the shelf for a prolonged period. This approach is easy to accomplish; simply add new products in from the back when stocking.
Many successful businesses use what’s known as ABC analysis to prioritize inventory management. The assignment rules are simple:
• A is given to products with a high value but low sales frequency
• B is given to products with a moderate value that sell moderately frequently
• C is given to products that sell often but have a low value
This makes it easier for you to see which products deserve your attention; “A” products need regular attention on account of their serious financial impact and unpredictable sales, while “C” items don’t need as much oversight thanks to their high turnover and smaller financial impact.
Planning for Contingencies
It’s important to be aware of the problems that could crop up in your business. For example, your manufacturer could run out of a product while you’ve got lots of orders waiting to be filled, or they could even suddenly discontinue your product altogether. If your sales were to unexpectedly spike and you oversold your stock, what would you do? If you miscalculated inventory and ended up with less product than you believed, how would you handle it? You need to identify potential risks and put step-by-step contingency plans in place so you won’t get thrown for a loop when things don’t go as planned.
Poor inventory control can be costly, so the effort you make now in sound inventory management practices will pay off in the future.
This blog post was based off of an article from Shopify. Find the original here.