Imagine getting an order to supply a thousand pieces of a particular product in your store within 3 days. You are excited and have started calculating the profits you will make on the products, only for you to get to your store and realise you have only 50 pieces in store, and might not be able to get more from your supplier, till after a week.

It is your village people, right? Well, it is not. It is simply because you didn’t pay attention to your inventory, which made you run out of stock and not know till you needed the products. But with inventory taking, you can avoid this and fulfil customers’ orders faster.

In this article, we’ll examine what inventory management is, why it is important, how to take inventory, and best practices to apply when taking inventory of your products. Let’s dig in.

What is Inventory Management?

Inventory management is the process of organizing and tracking the purchase, storage, selling, and monitoring of products you have in stock to ensure you have the right products in the right quantity at the right time.

With inventory management, you avoid losing business due to limited stock or having too much of a product in stock. It also helps you discover products that do not sell out fast, so you can avoid buying them in excess.

Now, inventory management is not only for finished products; it is even more important for raw materials, tools, etc. For example, as a fashion entrepreneur, you should keep an inventory of the number of needles, thread, zips, pins, scissors, fabrics, etc that you have. As a makeup artist, you should know the number of brushes, powder colour and size, lipstick colours, etc that you have.

Download the free inventory tracker template to start tracking your inventory today

Why Inventory Management is Important

This is why you should pay keen attention to the products you have in stock and maintain an active inventory.

1. Identify fast-selling and slow-selling products

With proper inventory management, you can identify products that get sold out fast and those that stay in your store for a long time. With this knowledge, you know the products to buy more of, and the ones to reduce or stop buying altogether.

Inventory management also helps you avoid stockouts in fast-selling seasons, since you already know the products that move most during those times. Thus, you can stock up on them on time.

2. Build customer loyalty

Imagine going to a vendor for an item and they don’t have it. You may not think much of it if it happens just once. But go there 3–4 times and they consistently don’t have what you want? Then I am sure you will stop going there altogether.

That is how customer loyalty works, and if you keep disappointing your customers with unavailable goods every time, they will look for someone else they can rely on to give them what they need.

Related: 14 Business Ideas to Start with 5k as a Student in Nigeria

3. Avoid losses and wastage

With effective inventory management, you can identify perishable or about-to-expire products to ensure they are sold first before new ones. This helps you prevent waste of resources invested in getting those products, and loss in the business.

4. Helps to detect theft and protect your products

Many employers get robbed and stolen from by their employees, and a lack of an inventory management system is one of the reasons. When you don’t know the number of products in your store or the quantity of a specific product that you have in stock, then you won’t know if you are being robbed.

5. Improve overall operational efficiency

With a proper inventory management system, you know the products you have in store, their features in terms of colour, size, quantity, etc. This enables a smoother running of your business, since you know what you have and don’t.

You should also read: 10 Ways to Market Your Business on a Budget

4 Steps to Effective Inventory Management

Ready to take inventory management seriously in your business? Here are 4 steps to get started today.

1. Planning

First, have a system in place to manage any products, raw materials, tools, equipment, etc, purchased to ensure effective storage and management. This planning stage will include getting a sheet to keep records of what you have.

It also involves looking at how products have been purchased over time to identify the products to buy more of, and the ones not to buy at all, or reduce the quantity bought. This ensures adequate preparation and helps avoid any surprises.

2. Purchasing

Next, you need to restock products that are already going out of stock or get new ones you want to add to your offering. Here, the plan and analysis you made in the first step help you know the products to buy more of or reduce. This is also where you determine the supplier to buy from, based on how fast they can deliver quality products to meet your customers’ demands.

3. Inspection and Storage

After getting the products, the next step is to inspect them to ensure they are all in good condition and of the quality you want. After this is confirmed, store them where they can be easily taken out for sales, and arrange them in order of expiration so that old products get sold out first before new ones.

Also Read: How to Write a Return Policy for Your Small Business

4. Monitoring

As time goes on, as you sell, you should keep an eye on the stock level to know when to restock certain products, or when certain products are about to expire, so you can put them on sale, etc.

Monitoring your stock level and aligning it with how much you have made also helps you quickly detect if you are being stolen from. In addition, it helps you know the products that get sold out faster and the ones that collect dust on the shelf, helping you make better decisions when restocking.

Best Practices for Inventory Management

Following these best practices will give you great results in managing your inventory.

1. Use the FIFO approach

FIFO stands for First In, First Out. This means products should be sold in the order in which they were bought or made, to ensure that goods made first sell out, to avoid expiration, which could lead to losses.

This is especially important if you sell perishable goods or goods with expiry dates. To do this, ensure old goods are in front, while new goods are placed at the back.

2. Manage your inventory daily with a tracker or sheet

Another key practice to adopt in inventory management is using a tracker or sheet to make the work easier. This sheet should be updated daily depending on the number of products sold daily.

This helps you know the products that are gradually going out of stock, to restock on time. It can also curb staff theft since you can easily reconcile the money made with the amount of product sold daily.

3. Identify low-turn products

Low-turn products are products that have not been sold in a long time, say 6–12 months. In this case, it is better to stop buying them and find a means to sell off the ones you have. This could be through a discount sale or by giving them as gifts when people buy a particular number of products.

4. Ensure quality control

Have a system in place to check and confirm the quality of products you buy to ensure you maintain your standard. This should be done when products are brought in, and periodically to check their status, expiry dates, and labelling.

5. Consider dropshipping

You can also consider dropshipping instead of stocking products in your shop. With dropshipping, you don’t have to deal with having excess or expired products, since the products go from your supplier to your customers.

However, dropshipping also has its disadvantages, as some suppliers may not treat your customers well or may give them low-quality products. So, you should weigh your options to see what best works for you.

Conclusion

Without Inventory management, your business is at risk of being stolen from and mismanaged. A well-updated inventory helps you know what needs to be bought or stopped being bought, depending on shelf life and demand. This helps you avoid waste and ensure optimal use of business resources.

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