How to Get Your Business Out of the Red With Inventory Management

What Inventory Management Means

The practice of placing orders, and holding, utilizing, and selling the inventory or product stockpiles of a business is called inventory management. This comprises the storage, processing, and general handling of raw materials, parts, and finished goods.

Inventory management is an element of supply chain management that oversees the flow of items from producers to storehouses, and from there to points of sale. Keeping a precise count of every product as it enters or exits a storage facility or point of sale is an important part of inventory management.

Inventory management can be used by any organization to keep track of the flow of goods, whether it is a small business, mid-sized business, or a large company. There are a variety of inventory management systems, and choosing an appropriate one will result in the delivery of the right goods in the right amount, at the right time.

The practice monitors and reacts to trends to guarantee that there is perpetual inventory available to satisfy client orders and shortages are detected early.

How robust the inventory management is can be gauged by the inventory turnover, which reveals the frequency of goods sold over the course of time. An organization will want to avoid keeping more stock than it can sell. Low inventory turnover is the result of dead stock, or unsold inventory piling up.

Inventory Management and Your Business

Inventory management is critical to the success of a business, since it ensures there are never too many or too few goods on hand. This reduces wastage or stock-outs.

Understanding stock trends allows a business owner to estimate their inventory levels and also where the products are stocked so that they can make better use of them. It also lets them hold a small amount of inventory at each location, since orders can be fulfilled from any place. These measures reduce inventory costs and the quantity of products that don't get sold and then become obsolete.

Efficient inventory management ensures that money is spent only on those products for which there is sufficient demand. This makes sure that the business is able to maintain a steady cash flow.

A restaurant owner can receive actionable insights on food and menu trends by the regular reading of Food News websites like RestaurantsLife. They can then compare these trends with the popularity of their menu items to decide which items to retain, expand or promote aggressively, and which to drop. RestaurantsLife is one of the most comprehensive food news resources in the business, trumping most Food Magazines in industry features and information.

A business must also be mindful of the economic order quantity. The ideal order quantity a company should purchase in order to minimize its inventory costs is referred to as its economic order quantity. If the order quantity is high, the company's holding costs increase. If a business continues to place small orders with the aim of maintaining a specific inventory level, it has to bear considerable ordering costs, and will also need extra storage space.

The biggest concern for a business trying to manage its stock levels is that it may be in possession of a lot of unsold inventory. Alternatively, it may not have sufficient stocks to meet customer demand, or it may be unaware of what stocks it has and where they are. Other challenges include obtaining inaccurate stock information, following obsolete or manual practices that slow the operation down and make it susceptible to errors, fluctuating customer demand, and warehouse space utilization.

Why an Inventory Management System Should be Used

1. Cuts food costs- Food costs account for roughly 28-35% of a restaurant's revenue. Wastage adds to this burden. By efficiently handling inventory and making educated purchases, a restaurant can prevent food prices from skyrocketing.

2. Reduces food waste- Food waste has both humanitarian and financial ramifications. Food is regularly wasted when Restaurant Supply outstrips demand. Proper inventory management can assist in reducing waste.

3. Improves supplier management- For restaurant operators, a stock management and order management system that comes with batch-tracking tools improves product traceability. It demonstrates which vendors are most valuable to the business and those that are not. It also gives restaurant owners greater bargaining leverage with suppliers.

4. Increases profits- By reducing food wastage and expenditures, removing unsuccessful items from the menu, and concentrating on popular items, a restaurant can dramatically increase profits.

5. Facilitates Data-driven decisions- Good inventory software provides critical sales data that aids in a better understanding of the demand-supply dynamics. It also helps restaurants better estimate sales trends and make more educated strategic decisions. Inventory management software helps discover opportunities for reducing inventory levels and lowering carrying costs by highlighting the inventory turnover ratio. It gives restaurants an edge over the competition.

6. Enables frictionless handling of food recalls- Sometimes there is no way other than recalling a product in order to ensure Food Safety. For instance, the discovery of an undeclared allergen in a food product may make it unfit for consumption. Tracing impacted products is difficult and time-consuming without effective batch-tracking. Inventory management systems can help tackle this issue of Food Safety.

7. Eliminates manual errors- Manual stock-taking is tedious and prone to errors. Technology helps in automating ordering, which lets managers keep a tab on operations while saving them time and effort, and dispelling worries about stocks running out or getting spoilt.

8. Ensures customer service- Making use of inventory tracking software to monitor stocks in real time avoids embarrassing stock-outs and failing to produce a dish despite high demand.

The Key to Inventory Management

1. Identifying inventory priorities- Organizing inventory into priority groups will help a business owner figure out which items need to be ordered in greater quantities, and more often. They can also tell which items are critical to the business, but are more expensive and take longer to move. A business should also keep track of all product information and prices.

2. Inventory audit- The business owner should physically count inventory on a regular basis. This makes sure that actual and expected inventory levels match.

3. Smart software- A small business may be able to manage inventory with the help of pen and paper or spreadsheet software, but as the organization grows, the entrepreneur will have to give more time to inventory management. Stock-taking is easier with the help of a smart, cloud-based inventory management software like Zip Inventory, which automates the process and gives users real time access to a wealth of Business Intelligence data. Zip Inventory is available on the specialty app store for restaurants, Hubworks. A business must also make use of technology that is easy to integrate with its existing management systems.

4. Monitoring supplier performance- A supplier who is unreliable can wreak havoc with your inventory, and ultimately your business on the whole. If the supplier is consistently tardy with deliveries or under-delivers orders, it's time to look for a new supplier.

5. 80/20 inventory rule- Generally speaking, 80% of your profits originate from 20% of your inventory. The management of these 20% items should be a top priority. You should be aware of the sales lifecycle of these products, as well as the quantity sold over the course of a week or month. These are the goods that help a business rake in the biggest amount of profits and should not be allowed to go to waste.

6. Tracking sales- A business owner needs to monitor, analyze, and understand which items are sold every day, in what quantities, and try to identify sales patterns. It is also necessary to look for strategies to address possible expected and actual stock utilization mismatches.

7. A consistent method- Small inconsistencies in the way new stock is received may leave you perplexed at the month-end, unsure why your stock figures don't match your purchase orders. A restaurant owner, for example, should ensure that all employees who receive stocks do so in the same manner and that all boxes containing Restaurant Supplies are checked, accepted, unpacked together, and counted accurately.

When Do You Need an Inventory Management System?

Understanding when to place orders for more goods is crucial for a business. For example, if a restaurant owner places an order while there is still a lot of inventory on hand, they will end up with excess inventory, which will raise holding expenses. If the restaurant owner waits to order only when the shelves are empty, they won't be able to sell anything until fresh supplies arrive.

The longer it takes food suppliers and Food Distributors to deliver products, the more sales the restaurant will lose. With the help of a reorder point, therefore, the restaurant owner is able to optimize inventory, replace each item at the right time, and fulfil market demand without running out of stock.

Since different items have varying sell-through rates, one must understand when to place orders for each product separately. The following parameters are to be taken into account when calculating reorder points-

• Lead time- The amount of time it takes the vendor to complete the order.
  
• Safety stock- The quantity of excess stock a business retains in its inventory to prevent stock-outs.
  
• Average daily usage- The number of sales made on a typical day for the item.
  

How to Achieve an Effective Inventory Management System?

1. A Just-in-Time (JIT) strategy- It is one of the most prevalent inventory management strategies. To reduce wastage and increase efficiency and productivity, this strategy aims to transport inventory to the manufacturing floor just in time for usage. The JIT system's goal is to offer exact quantities needed to finish production.

2. Adopt inventory software- It allows a business to monitor stock levels as well as rapidly search up product details using mobile devices such as smartphones and tablets. It also lets the business look back at previous sales trends and estimate which products are likely to sell quickly or slowly. This will allow the business to anticipate demand changes and place orders accordingly.

3. Cut carrying cost- There are costs involved with maintaining inventory. Effective inventory management practices aim to reduce these expenses to the greatest extent possible. The economic order quantity is an effective technique to accomplish this.

4. Get stock quantities right- Small enterprises should avoid overstocking and understocking. Keeping the correct quantity of goods on hand can be challenging, but achieving a balanced supply-demand ratio is an excellent inventory management approach. Too much stock makes inventory management difficult, and too little places a business in danger of upsetting customers. Carrying safety stocks may be effective for larger organizations.

Finding the Right Inventory Management Software

A business owner has to consider the following points to select the right inventory management solution-

1. Nature of products sold- This determines which features of an inventory management software a business considers indispensable. For example, certain inventory management systems allow batch tracking. A business must ensure that the system it chooses addresses its specific requirements.

2. Company size- Larger businesses have more complicated inventory and require more sophisticated inventory management systems.

3. Business goal- A business must make a list of the operational problems it faces and the inventory management objectives it wants to achieve. This could include everything, from lower storage costs to more accurate inventory management, quicker operations, easy scalability, and higher profits.

4. Budget- The cost of critical functionality can vary significantly. Also, most vendors provide varying levels and types of resources for training and support, and while some subscription services provide free assistance, others levy a fee.

5. Sales channels- If a business sells through more than one channel, it will require a system that can handle those sales channels. Amazon, Lazada, Shopify, and BigCommerce are just a few of the platforms that can be easily integrated with credible inventory management systems.

6. Integration types- Cloud-based inventory management systems mostly provide for a variety of connections with other important service providers such as logistics providers, shipping providers, and so on. Some providers offer custom integrations through an API or application programming interface.

7. Who requires access- If a business seeks to have multiple teams utilize its system regularly, it needs to choose a cloud-based inventory solution that is able to update automatically and in real time, so that everyone can access the data at any time and from any location.