5 Tips for Improving Your Inventory Management in 2021
Inventory management remains one of the most important ways you can transform your e-commerce business into a profitable and successful enterprise. This is one of the critical competitive advantages that you can gain in 2021 when virtually every business is feeling “the squeeze” following shutdowns and social distancing measures that have accompanied the COVID-19 pandemic. The mistake many entrepreneurs make is to think that inventory management is only for larger corporations with unlimited research and development budgets.
The truth is that you only have to tweak your inventory management system here and there to make it fit your purpose. One thing you should be aware of is how orders come in so that you can predict them in the future. That means you order what you need to meet customer demand, but almost nothing more. Businesses with a lot of experience and management information tend to do their inventory management better than those just starting.
It’s imperative to have an accurate forecast that shows you the potential growth curve of your business. You also need to know your sector and the market trends in it, so you can respond to them. Think about your bottom line and where you want to be in terms of improving your profitability and efficiency. Factors such as consumer confidence can also have an impact on how you manage your inventory. This article identifies five ways in which you can increase quality and efficiency in your inventory management this year.
1. Setting minimum stock levels
You should carefully set minimum stock levels consistent with your business needs. Consumers are unforgiving to companies that don‘t have the products they want, even more so when the product is advertised in a leaflet. Failing to meet customer expectations might not just lose you a single sale; you could lose the customer completely. Setting minimum stock levels that take into account even these sales events can keep this from happening.
On the other hand, some might be tempted to err on the side of caution by ordering too much of everything so no customer is ever let down. The problem with that strategy is that you are essentially keeping your cash flow in stock that isn’t moving. And there may not be enough space in your warehouse or another storage facility to store items that aren’t being bought.
Achieving that elusive balance between supply and demand isn’t easy, so savvy businesses set minimum stock levels to help them meet almost all (but not all) demand. When the minimum stock level is approached, you should have an internal notification that alerts you to order more before running out. Minimum stock levels are a function of sales data and the time frames typically required to acquire additional stock.
2. Understanding your Supply Chain
As you begin to understand your individual supply chain better, make contingency plans for when things could go wrong. For example, a previously unpopular product might suddenly receive a sales boost due to a celebrity endorsement. You have to be able to react quickly to these often fast changes in demand through your inventory management framework.
This is where business intelligence comes into play. Be aware of all the things that could potentially impact your supply chain. Always keep an eye on your inventory data, and be as analytical as possible. Periodic visual checks and understanding the connectivity of your supply chain make all the difference.
3. Improving your product portfolio
The third thing you need to consider is the level of flexibility of your stock keeping units (SKUs). No matter how diligent you are, there are bound to be certain unexpected spikes in demand that change how you manage your inventory. For example, an offer may attract more attention than anticipated, which means that your stock will deplete faster than you can replenish it.
One of the techniques used to deal with this problem is to update SKUs and use them in a more flexible manner. For example, individual items could be converted into cases or cases converted back into individual items, to allow for a more flexible way of meeting customer demand. Indeed, many companies use this approach at crunch time during peak seasons such as the Christmas holidays.
4. Zombie Inventory
Try not to overstock inventory so that you create a balance both sustainable and manageable. Make sure obsolete and slow-moving inventory is removed to create space for more popular items. Holding too much inventory ties up cash and takes up space, so avoid it if at all possible. Remember, inventory tends to lose value over time, so holding too much too long can compound your losses in tied-up capital.
Instead of spending money holding “Zombie inventory” that’s not moving, move it out using sell-off advertising campaigns or create other offers to encourage sales. Study the data coming out of your sales websites and other management information systems to determine which inventory is not moving.
Most entrepreneurs rarely if ever visit their order fulfillment warehouses, so they lose track of inventory. You need a inventory software, which identifies over stock, to ensure that you’re kept up to date with how your stock is moving.
5. Dealing with exceptions like pandemics
2020 will go down in history as the year the pandemic began, but also as a year of great digitalization. Lockdowns, shutdowns, and restrictive measures made the business environment completely unpredictable, full of pitfalls as well as opportunities especially for e-commerce businesses. Businesses can deal with this unpredictability and gain a competitive edge through the strategic use of data-driven inventory management techniques.