Three Best Practices to Keep Better Track of Your Inventory

imageBy Roy Rasmussen

Inventory management issues can have a bigger effect on your business than you might think. The average business spends 25 to 35 percent of their annual operational costs on inventory, which reflects overspending by 35 percent due to poor inventory management practices, according to Scanco. Poor inventory management raises operational costs, reduces profits and makes companies more likely to encounter cash-flow problems. Inventory problems hurt the economy, too. For instance, accumulation of inventory dragged the U.S. economy down by nearly 1 percent in the first quarter of 2017, Bureau of Economic Analysis data shows. Products that sit on shelves don’t generate profit.

On the other hand, improving inventory management can be a cost-efficient way to cut your operational costs and boost your profit margin. Here are three best practices to help you track your inventory more efficiently while wasting less on inventory problems.


Adopt Inventory Management Software

The biggest problem most companies have with their inventory tracking system is that they don’t have one. Eight percent of small businesses don’t bother tracking inventory at all, a Wasp Barcode Technologies survey says. Fourteen percent use pen and paper, while 21 percent enter inventory data manually using Excel. Altogether, 43 percent of companies either use manual methods rather than automation to track inventory or simply don’t track it. This creates unnecessary inventory problems that arise from human error, which is responsible for 62.3 percent of inventory and order fulfillment problems, Stitch Labs research reports.

You can avoid these unforced errors by adopting an inventory management software solution. Inventory software enables you to integrate your point-of-sale transactions with your inventory data, so that your database gets updated instantly each time a sale is made, drastically reducing the amount of labor and time spent tracking stock. You can likewise integrate your inventory data with other programs such as accounting software, reducing your bookkeeping load. Specialized inventory software is also available for specific industries, including construction. Be sure to schedule periodic manual counts to supplement and verify automated counts.

Categorize Your Assets Carefully

To make the best use of your inventory management software, it’s vital to categorize your assets carefully. Proper asset categorization is the key to effective inventory management. How you categorize your assets determines how quickly you can find the data you need and analyze it in order to optimize your inventory.

There are multiple ways you can categorize your assets. Distinguishing moveable from fixed assets is a broad step towards categorization, but more specific categories can be helpful for practical inventory management. For example, you can categorize products by use, department, value, sales frequency or other variables. Identify which variables make sense for your company’s inventory stocking procedures. Once you’ve created your categories, you can then use them in conjunction with your software to simplify your reordering process.

Control Inventory Shrinkage

Shrinkage is another inventory issue that can cut into your bottom line. Retailers lost 1.38 percent of sales to shrink in 2015, at an average loss of $377 per incident, costing a total of $45.2 billion nationally, according to the National Retail Federation. Shoplifting and employee theft accounted for the greatest percentage of this loss.

Taking steps to prevent shrinkage can empower you to retain more of the sales revenue you earn instead of losing it to thieves. Installing high-tech surveillance cameras can help prevent both internal threats from employees and external threats from shoplifters. Using security cams with analytics capability can also help you study customer and employee behavior in order to optimize your store layout and improve customer service, which is why over two-thirds of employers are now using surveillance equipment for non-security purposes, says Security Systems News. Training employees how to spot shoplifters and scams, strategically placing cashiers and floor managers, and locking valuable items in a secure area are some other strategies for preventing shrinkage.

Roy Rasmussen, coauthor of "Publishing for Publicity," is a freelance writer who helps select clients write quality content to reach business and technology audiences. His clients have included Fortune 500 companies and bestselling authors. His most recent projects include books on cloud computing, small business management, sales, business coaching, social media marketing, and career planning.

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