Why Inventory Management Matters For Your Business

Successful management of inventory is a critical aspect of business for many companies, particularly restaurants and retailers. Optimising inventory levels at all times means that businesses can maintain or increase their levels of service, while the capital tied up in stock is kept to a minimum

Why inventory optimisation matters to your business

Keeping optimal levels of stock means calculating the safety levels of stock required to ensure your business can run successfully at all times, and setting re-order points and quantity levels. Your stores and warehousing are one of the most important areas of your business, yet are often overlooked by business owners and managers wanting to see returns on investment (ROI). Inventory management is key to the successful operations of your business, so taking time to look at solutions to optimise inventory stocked is important.

Optimising your inventory levels can include:

• regular inventory audits and budgets
• working out inventory turnover ratios
• investing in an automatic inventory system
• updating policies surrounding stocking and levels of goods held

Any lack of inventory eats away at your business profits and can seriously impact businesses like restaurants, so it’s important you get it right in the planning stages. Too much stock means you will have excess capital tied up in stock that’s sitting idle, and if this includes fresh food then there is the danger of wastage if it’s not sold while still fresh. You need to find the happy medium, a point where inventory levels remain high enough to deal with peaks in demand, yet don’t tie up unnecessary capital.

Inventory tracking

Setting up a system for inventory tracking will help you keep inventory optimised. You need to set up a chart detailing all types of merchandise you stock and record how many items have been sold or utilised over the past few months. This way you can work out projections for how much merchandise needs to be ordered to maintain safety stock levels. You should ensure you build any likely seasonal increases into your projections to make sure you can cope with events like Christmas.

You can also consider using barcode scanners for tracking inventory, as this eliminates mistakes due to manual stocktaking. Always bear in mind that spending too much on your inventory reduces your profit margins, so has a severe impact on bottom line profits.

Discriminating between the slow-moving items of merchandise you stock and the products which simply fly off the shelves is very important for inventory management and tracking. Slow-moving goods eat up shelf space and can cut into profits in a major way, yet there’s no way around the fact that you may still need them to maintain your successful business. Keeping large stocks of slow-moving goods simply doesn’t make sense, though.

It’s generally the case that an average of 20% of the in-stock merchandise will generate around 80% of sales, so keeping up to speed with these best-sellers is essential for maintaining profits. Constantly reviewing stocks of best-selling products must be a regular task, to make sure supply chain difficulties don’t lead to products being out of stock. Of the remaining 80% of the stock, experts reckon that just 30% of this will amount to around 10% of sales, so identifying this 30% of stock should also be a priority, for business owners wanting to maintain profitability. The remaining 50% of goods you keep in stock will make up the final 10% of customer sales, and these goods should be at the bottom of your list of priorities.

Order processing

Inventory management can be slowed down if a clumsy order processing system is in place. You might want to consider the benefits of software to manage the order process, from the placement of order to goods receipt. If you stock a large number of bulky products, you could also consider the benefits of drop shipping, which will allow you to order goods from the manufacturer or supplier and get them shipped directly to customers. Drop shipping can be extremely useful for retailers with limited storage space and will ensure customers receive their goods in a speedy manner.

If you’re looking for an accountant with the expertise required to handle all complexities of your retail/hospitality business, get in touch with Virgate Accounts. Our professional approach and no-nonsense attitude helps ensure clients maximise profits and maintain business success.