Taking Stock of Your StockAdmin
You really can’t afford to bungle up your inventories. If you don’t keep tabs on what you bought and what you sold, neither will you know what you have nor will your accounts tally at the end of the day. And from there on all the other problems stack up and culminate in keeled-over finances. Which is a euphemistic way of saying that you’re buggered. It’s worse for e/m-commerce companies because they usually deal with a larger number of goods, and sales are virtual.
The most common mismanagements of inventory are:
- Over-stocking: you bind your capital in stock that may not sell if demand suddenly plateaus
- Under-stocking: you don’t have stock to keep the cash flow coming
- Lost / misplaced / incorrect stock levels: you think you have stock that you actually don’t because someone misplaced it, someone nicked it, or
- No centralised system: you’re writing it down on paper and forgetting to update it onto the computer, you use Excel sheets that are time consuming and miss out on data, and there is generally no central system that can be leaned on for authority.
Whether you store your own inventory or dropship from a supplier, rather than ruin your business through ineptitudes that ought to be handled, here is how you can manage your inventories.
There are a few typical inventory management systems commonly used:
Minimum level of stock:
You stock up with a comfortably minimum inventory to address the demand but replenish it only when the level dips below the bare minimum.
You may run out of stock given a sudden swell in demand.
You order stock just in time to keep up with the demand. Your money isn’t locked into unsold inventory.
You may not be able to source stock at short notice or cater to a surge in demand. You could lose customers.
FIFO (First In First Out):
The products first received are the ones first sent out. This mains the newness or freshness, especially of perishable goods.
If there are price fluctuations, you may end up buying stock of a particular product for varying prices just within one period, and won’t be able to match current costs with current revenues.
Using previous sales data, studying purchasing trends, and generally understanding your demographics and buyer persona, you make an informed guess about how much stock to stock.
If your forecasting isn’t well-informed, or your forecasting prowess turns out to completely hit the mark, you may end up with an excess or shortage.
You manually count the inventory to match the system number with the actual stock in hand.
This is a manual chore and time consuming. However, when done well, there is no down-side to it, and, in fact, must be made as habitual as brushing your teeth in the morning.
A few best practices:
- No matter the demand, first determine your minimum viable stock level, and always maintain it, i.e. replenish exhausted stock.
- When forecasting demand, make sure you fix a timeframe within which you make a forecast.
- Let your buyer persona and solid sales data from previous seasons inform your forecasting.
- Try to employ drop-shipping where you can. This allows you to test the demand of your products without worrying about tying up sales in stock.
- Use software like QuickBooks, Sage or Microsoft Dynamics to centralise your inventory data.
- Every month, manually take stock of your stock.
A little effort and planning will go a long way in preventing the seepage of your financials.