Perhaps you’ve never thought about the similarities between fishing and small business inventory, but I have. Hear me out. Let’s say you arrive at a lake for a day of fishing. Your success will depend on a few key factors:
If you can nail down the “what” of the situation, you’ll know the species you need to target. This information will inform which lures or bait you use and how you present them to the fish.
Answering the “where” will help you to conserve your time and energy. There’s no use traversing a lake aimlessly looking for fish if most of them congregate in just a handful of areas.
Finally, the “when” is the point that the rubber meets the road. You can know what fish are in the lake and where they’re located, but if you don’t have the right timing, you’ll probably strike out.
Your inventory presents similar problems and requires similar answers. You always need to understand what materials or products are in your inventory. Beyond that, you need to know where they are at any given time. Knowing these 2 factors enables you to master the timing so that you can maximize your efficiency to save money and boost sales.
In order to understand what inventory is, many small business owners need to broaden their minds. For example, the term “inventory” doesn’t just refer to end-use products. If it did, then businesses that manufacture components for other companies would never have an “inventory,” which we know is not the case.
“A company’s inventory consists of all the goods it offers for sale,” says entrepreneurial guru Rosemary Carlson. “For example, a company may buy wholesale items, such as clothing or gift items, and resell them. Its entire inventory is made up of finished goods. Manufacturing companies have an inventory made up of raw goods, or various product components, works in progress, and finished items. For example, the leather pieces used to make boots would be inventory for a boot manufacturer. All of these units qualify as inventory and are recorded in inventory and work-in-progress accounts that show up as assets on the company’s balance sheet.”
To account for the various stages of a supply chain, inventory must be broken down into these various categories. It starts with raw materials, which are elements used to make other products. Next up is work-in-progress, which consists of unfinished products. A car rolling down an assembly line is an example of this stage of inventory.
The last stop in the process is finished goods. Continuing the car analogy, this is where you would find a shiny new car sitting on a dealer’s lot, all finished and ready for a customer. Other forms of finished goods include DVD players, cowboy hats, sourdough bread, and aviator sunglasses.
If there’s a major flaw in my earlier comparison of inventory management to fishing, it’s this: a poor understanding of a lake’s fish will simply result in an ineffective fishing trip. You might be frustrated on the drive home, but the stakes are quite low.
With your small business inventory, on the other hand, your actions (or lack thereof) have serious consequences. If you don’t get your ducks in a row, your business will flounder. Fail to improve the situation, and your business will sink.
“Before a small business can reasonably make a promise to supply its customers, it needs to have some assurance that it has what its customers have ordered,” explains business operations expert Gary Marion. “For a small business to have control of its inventory in this way, it needs to have processes in place to count, verify, and audit all of the items in its inventory. The goal of any inventory control system should be to have 100% accuracy. That means that you not only know what you have on hand but how much of that is available to ship.”
Indeed, inventory management is an important part of running a business that shouldn’t be overlooked. Without the proper items in stock, it’s hard to be successful—so it’s essential that you have a good process laid out. Even more importantly, you need to follow it. Managing so much product can sometimes seem overwhelming if you don’t know where to start. Here are some tips to help you refine your processes and avoid potential issues.
Perhaps you’re not sure where you currently stand from an inventory perspective. This uncertainty means you’ll need to do some due diligence before you can begin to make impactful steps forward. Start with an inventory audit: review all your inventory and then contrast your findings with your financial records. When everything correlates, you’ll have a solid base from which to implement your future efforts.
One of the most important parts of good inventory management is having an organized stockroom. When you retrieve items to restock, it’s essential that you know exactly where to go. If you have to spend 20 minutes sifting through your inventory to find the right product, you’re setting yourself up for disaster.
If you’ve never taken the time, set aside some time this week to actually draw out the room and write down where each product will go. Designate each shelf space and section of shelves for similar items. If you don’t have shelves, consider purchasing some. Whether you do it by item type, alphabetically, or another system, come up with something that works for your business—and stick to it.
Once you’ve planned out your stockroom layout, what system do you currently have in place to know what you have in stock at all times? Do you eyeball it, or do you use a point-of-sale (POS) system to help? Have you given your products SKUs? These days, there’s an app or piece of software for just about everything, including inventory management. Before you decide on what physical system you want to use to track your inventory, develop a plan for how to log your store products to make tracking easier.
Now that you have a system, how should you track everything? The most important things every product at your business should have are:
You can also choose to add as much as you want to each product and include things such as description, color, size, and weight. If you sell books, you’ll also need to log the ISBN numbers. Ultimately, the more organized and better labeled your products are, the less stressed you’ll be when it comes time to do inventory management for your business.
It’s great if all of your products are labeled and easy to find within your complex inventory—but what if you need to reorder? Do you remember which vendor to contact? Is there a specific representative for that vendor that you’re supposed to contact? This step is another instance when a POS system will come in very handy. Certain POS systems actually save all of your product and vendor information in 1 easy-to-access spot. Along with the labels you gave your products, make sure to log the vendor information that corresponds with each product so you can very easily access the data when it comes time to reorder.
No matter where your business falls within the supply chain, modern software allows you to track all goods and inventory. You’ll be able to manage the entire process from manufacturing to delivering to a customer. Yes, it’s time to say goodbye to manual processes that can be laborious and unreliable.
Modern inventory management software will integrate with all your other business systems. From your accounting to your returns department, it’s a game-changer to have all your technology talking to each other.
“While ‘inventory management’ sounds like it’s a simple tracking of what you have, inventory management software actually goes several levels deep,” says business technology expert Ted Needleman. “The software should integrate with at least one other back-end office system, namely, with either your accounting or enterprise resource planning (ERP) package. An inventory management system’s function is to track those warehouse items through acquisition, sales, or use processes; locate them across 1 or many warehouses, and price (cost) the inventory (sometimes in multiple currencies) so you know the value of items you have in inventory for accounting purposes. In this way, inventory management software sometimes overlaps with typical asset management software. Core functionality definitely centers around your inventory levels, but this kind of software also tracks sales, purchase orders (POs), and deliveries.”
The benefits of inventory management software are undeniable, but they’ll only be realized if you choose the right product for your business. As you review your options, consider whether they align with your business model. Other key factors include whether the software will send you alerts if issues arise, forecast your needs, integrate with your other systems, and/or have the potential to grow with your business.
Let’s look at 11 of the options available on the market:
Each of these software options provides distinct advantages as well as some potential disadvantages. Take the time to identify your favorites and then take them for a test drive. Given the time and energy needed to fully implement a new system, you never want to start that process unless you’re confident it’s the direction you want to go.
It’s easy to view our business from the safety of our own perspectives—but if you want to improve the wider expanse of your inventory, you’ll need to loop in your customers. Not only are they the folks who help pay your bills, but they also possess insights that might be impossible for you to uncover alone.
Draft an email that gets to the bottom of your performance. Possible questions include:
Armed with information provided by your customers, you’ll be in a much better position to implement lasting changes.
How would you assess the state of your current inventory efforts? You might be the kind of business that has a grasp on where everything is at any given time—or you could be a stubborn spreadsheet junkie who does everything manually and is in dire need of help. Just know that there’s always room for improvement. Your systems can be enhanced, your integration can be improved, and your vision can be clarified.
Inventory management software is reaching a new level of user-friendliness at the perfect time because America’s small businesses face more challenges than ever before.
“The supply-chain disruptions rippling across the business world are taking a heavy toll on small US companies, which have fewer resources to absorb or push back on price increases and less leverage to pass along the higher costs to customers,” reports the Wall Street Journal. “44% of small businesses reported temporary shortages or other supply-chain problems in March, according to a survey of roughly 800 companies by Vistage Worldwide Inc., a business advisory firm. A US Census Bureau survey of small businesses, completed in early April, found supply-chain disruptions in wholesale trade, manufacturing, and construction, among others. Multiple forces are driving supply-chain woes, from coronavirus infections among employees and temporary business closures to increased demand as vaccines take hold and restrictions ease.”
The bottom line: you must wrangle your inventory, or it can break you. Challenges that used to be navigable with basic business knowledge have all been exacerbated by the intense conditions we currently face. It’s no longer acceptable to be adequate—you need to improve every aspect of your operations if you want to thrive.
Don’t delay. Now is the ideal time to take stock of your business and figure out the best ways to improve your inventory processes. Not only will you make life easier for you and your employees, but you’ll also provide benefits to your suppliers, partners, and customers. And when your small business ecosystem is happy, everyone wins.