If you sell products, managing your inventory is crucial to the success of your business. Inventory management ensures your business operates efficiently, allowing you to sell more products and ensure customer satisfaction. Unfortunately, many startups struggle with inventory management, leaving them with out-of-stock items.
Inventory management refers to your internal business process for keeping track of everything you own in your warehouse, including equipment, products, and raw materials. With the right software, businesses can track their goods and costs, create work orders, and improve the overall efficiency of the business. Here are some reasons inventory management is crucial for any business that sells products:
Overstocking means you have excess inventory that takes up warehouse space, ultimately costing you money just to store. If you don’t sell these products, they can sit for months, forcing you to use other resources to move and track other types of inventory. It can also cut into your cash reserves because inventory that doesn’t move costs money the longer it sits.
Inventory management allows you to automate processes to prevent overstocking. Instead, you can track your inventory and create forecasts to determine when to purchase more, preventing overstocking and its associated costs.
Shortages are the opposite of overstocking. Instead of having too much product, you don’t have enough. If you run out of product, you can’t fill sales orders, potentially losing customers and revenue. However, with inventory management software, you can completely prevent shortages by setting up your system to notify you when there’s a shortage. Then, using inventory forecasting, you can automatically re-order products consistently and prevent shortages from affecting customer relationships.
Low accuracy rates on orders are one significant downside of poor inventory management. On the other hand, accurate orders improve your customer relationships and drastically reduce time and stress, especially for your sales team. Inventory management systems improve your filled order accuracy to help you send the right products to customers.
Proper inventory management can make your company more organized at a foundational level, allowing everything to run smoothly. When your warehouse isn’t organized and staff can’t find products or materials, it can quickly cause bottlenecks and stress, making the front office even more chaotic. Controlling your inventory allows you to focus on more urgent tasks, and you won’t have to worry about time lost from searching for items regularly.
Inventory management can reduce overhead costs by tracking and storing items more easily. With good inventory management software, you can operate more efficiently and put the top-selling products into accessible areas while optimizing your processes to save on overhead and reduce wasted time.
Inventory management will improve data visibility and planning by offering key insights into your business. For example, barcode scanning and centralized warehouses can help companies closely analyze their stock and determine where inventory is going, how to make processes more efficient, and how to predict customer demand to make smart purchasing decisions.
Better inventory management directly impacts customer service. When you consistently have items in stock and provide accurately fulfilled orders, you can keep your customers happy and expect return business. Improved customer service can help you build a reputation as reliable and trusted in the marketplace.
Additionally, along with accuracy, good inventory management can reduce the time it takes to pick and ship items from your warehouse, allowing you to remain competitive by offering faster shipping times while giving customers the updates they need about their shipments.
Manual tasks are time-consuming and require money. You can decrease your labor costs and improve efficiency by automating time-consuming manual tasks via barcode scanning and inventory management processes to eliminate labor-intensive processes, such as inputting product numbers. In addition, by automating these tasks, you can free up resources for more important business tasks, allowing your employees to spend their time on more important work, such as planning for the future and order fulfillment.
Inventory management systems allow you to coordinate your efforts between multiple locations and facilities, including warehouses and retail locations. With better coordination, you’ll know when to order more products and materials based on sales information to cut costs and improve your overall sales process. For example, let’s say you manage a retail business, and you’re low on stock for a certain product. Your inventory management system can help you determine which facility has the product, what it costs, and how quickly you can ship it to the store or customers.
Once an order is placed, the inventory count will automatically update with the accurate number of products available in storage.
Inventory turnover is the number of times you’ve turned over your inventory in a given period, measuring how efficiently you use inventory to help forecast and plan for the future. Inventory turnover ratios vary by industry. For example, car dealerships may have a low inventory turnover ratio because cars are expensive. Meanwhile, an e-commerce store that sells pet products may have a higher turnover rate because its products are more affordable and used daily.
That being said, increasing inventory turnover means you’re selling products; the more products you sell, the higher your profits. Additionally, it prevents dead stock—unsold inventory that takes up space in your warehouse and costs money. Inventory management prevents dead stock and increases turnover by helping you optimize the value of your goods to keep fewer slow-moving goods on hand and increase the stock on fast sellers.
Inventory management improves internal processes that can affect the success of your business. Simplifying and streamlining your inventory with the proper logistics and fulfillment software is crucial if you want to reduce spending and increase warehouse efficiency. The type of inventory software you need will depend on your business structure and the tools you already use. For example, robust systems can integrate with your ERP system to help you manage everything from your finances to planning, logistics, and operations from a single dashboard.
If you’re unsure which system will work best for your business, you can look for inventory management solutions for your industry or try demos before committing to a contract.
Ashley Nielsen earned a B.S. degree in Business Administration Marketing at Point Loma Nazarene University. She is a freelance writer who loves to share knowledge about general business, marketing, lifestyle, wellness, and financial tips. During her free time, she enjoys being outside, staying active, reading a book, or diving deep into her favorite music.