Run your business smoothly with inventory management
A real-time, reliable inventory management system is indispensable to your business. Knowing what and how much product you have gives you a better idea of your potential earnings, costs, capacity, and helps you plan for the future.
You want to avoid being stuck with ‘dead stock’ – stock you can’t get rid of – or having to say to a customer ‘sorry, we’re out of that’ whenever possible.
What is inventory management?
Inventory management is the idea that you should always have the right products and the right amount of products for sale at any given time. Good inventory management means not having excess stock (in other words, saving money on your supply).
Creating a good inventory management system means taking into account the raw materials and components used in your products as well as the products themselves, organising storage space, and tracking sales.
Having a large inventory may not sound like a problem, but it’s not always ideal. If your inventory is too big, it can spoil (depending if you sell food or drink) before you can offload it. Larger inventories are also more subject to theft and there’s a risk that shifts in demand could leave you with dead stock.
How to do inventory management
There are a few different ways to optimise your inventory management. First, some basic tips that apply regardless of your system.
Inventory management 101
You want to make all your decisions about what and how much you stock based on data. Pay attention to sales statistics, most popular items, and market trends to figure out what to keep and what to move attention away from.
By the same token, pay attention to what isn’t selling. Generally, 6 to 12 months without selling something is your cue to discontinue that item. And to avoid having to waste what you’ve already bought, try introducing a discount or promotional offer to sway customers.
It saves a lot of time and is generally more accurate to use inventory management software (more on that later), but you should also check your stock manually on occasion. Make sure your eyes and your automation are on the same page. Manual checks are also important for quality control.
If there’s equipment involved in managing your inventory, make sure it’s in working order. Broken machinery can cause significant delays in delivery and stocking of new products.
Organise your inventory into priority groups so your strategy is clearer. This is a good way to keep more effective tabs on your high-value items. You can determine which of your items is high-value by multiplying how much it costs and how in demand it is.
You can organise your inventory easily using the SumUp App, which is free to download on iOS and Android.Organise your items
Keep a safety stock
Even though having too large of an inventory can be a disaster, it’s important to set aside a safety stock. What is safety stock? It’s the amount of inventory you acquire as a buffer against unexpected developments, such as:
forgetting to reorder in time
inaccurate projections or financial forecasts.
Maintaining a safety stock is a fine line. It’s easy to go overboard and wind up with more than you’re prepared to handle. But there’s a formula you can use to figure out the right amount of safety stock to keep.
To do a safety stock calculation, multiply the number of items you sell in a day by the number of days you want to have safety stock for. So if you sell 43 of an item in a day and you want to be able to cover 2 weeks, you’d multiply 43 by 14.
Calculating your safety stock like this assumes there are no other variables, so it’s mostly useful for estimations. If you want to improve the accuracy of your safety stock calculation, account for demand and lead time – the time it takes for restocking orders to be received – as well.
You can find your average daily demand by adding the number of sales in a given period, and then dividing that by the number of days in that period. Different products are in different levels of demand, so you don’t need the same amount of safety stock for each product.
What is FIFO?
One of the most common ways to do inventory management is called the FIFO method, which stands for ‘First In, First Out’, and the idea is simple. The first items you get in stock are the first items sold.
FIFO is especially appropriate if you sell perishable items like food. Regardless, FIFO aligns expected cost flow and actual flow of goods, which means it gives you an accurate idea of your inventory costs.
It also protects against inflation, because FIFO assumes that buying new inventory will cost more than it cost to buy the older inventory. Finally, when you sell products as soon as you get them, you’re less at risk of having obsolete products.
Most businesses use FIFO because it’s conceptually very easy to understand and it’s designed to minimise risks posed by things like inflation. You can implement FIFO in your warehouse or storeroom by adding new items from the back, so your older items are always at the front.
Inventory management software
Detailed analytics and real-time reporting are essential to maintaining an accurate inventory. While you could write your reports manually, with spreadsheets and account statements, automating these tasks is way easier.
That means using the right inventory management software. Inventory management software is connected to your payment method and your logistics so that every order you place and sale you make gets recorded.
Manually updating your inventory takes more time and usually results in out-of-date numbers, since by the time you finish, there’s new data to process. Also, maintaining a spreadsheet can tell you what you’ve sold and what you’ve ordered, but it can’t generate future projections for you.
So what’s the solution? A POS system. With a good POS, you’ll always be aware of new data as it comes, and you’ll save valuable time in the process.
Using SumUp POS for inventory management
At SumUp, there’s a POS system for all your inventory management needs. Easily upload your inventory to the cloud so the POS will log any changes. Keep track of your sales and cash flow so you can collect data on which products do well and which don’t.
You can also get regular stock audits, track deliveries from your suppliers, and use the sales data you’ve collected to generate reports and projections for the future.
Thanks to a slew of integrations, you get over a dozen other services along with the built-in SumUp features. Payroll software, help with your taxes, customer loyalty apps, employee management tools, and more are all a tap away.
Ready to streamline your inventory management and make running your business easier? Then start following these tips, and try out SumUp POS for free today.Learn more