How To Manage Inventory

Techniques to purchase, stock and manage inventory efficiently.

Learning to manage inventory efficiently and correctly will allow a company to stock a sufficient quantity of product to meet customer needs. Not enough inventory causes delays and is bad for business. Excessive inventory costs a business money. A retail business only makes money when its stock is sold, maintaining the point inventory until it has sold incurs certain expenses. These expenses include:

  • Interest on any loans used to purchase goods.
  • Cost of storage space.
  • Cost of moving stock and arranging it for display.
  • Cost of time spent managing the inventory.
  • Any cost of damaged or stolen inventory.
  • payroll

A large amount of a business's money may be tied up in inventory. It is possible to manage inventory so that profits are maximized and costs are minimized.

Purchase the right products

  • Use market research to identify the proper products for each target market.
  • Analyze sales from previous years.
  • Look for new products for each target market.
  • Study the economy forecast for the coming period and determine how target market purchasing power might be affected.
  • Compare the effects competitors sales have on your sales.
  • Learn from experience what products to buy and in what quantities to buy them.

Buying Correct Quantities

It is necessary to maintain the proper variety and quantity of inventory to satisfy the target market. At the same time it is important to not get caught with an overstock of obsolete items. To do this you must:

  • Know what product to order
  • Know how much product to order
  • Know when to order the product
  • Know when to expect the products to arrive
  • Know what quantities of product should be in stock during the business cycle
  • Know when reorders should no longer be submitted
  • Know when products should no longer be in stock

This knowledge is acquired by analysis and experience:

  • Make sure suppliers are reputable and will provide products in the quantities required.
  • Study lead times for supply and delivery to ensure ordering at the correct time, or determining the delivery time for the customer if additional products have to be ordered.
  • Don't over buy just to take advantage of special supplier deals.
  • Review buying plans weekly and adjust as needed. If inventory is selling or being used faster than expected, look to source more product as soon as the trend is spotted.
  • Establish stock levels (minimum, maximum and at what point to re-order).

Managing Inventory

The easiest way to manage inventory is with a computer inventory management system. The time required to accurately manage inventory will be minimized by using one of these systems:

  • Point-of-sale terminals-automatically update computerized inventory levels
  • Job costing and inventory systems-automatically update computerized inventory levels
  • Barcodes and barcode readers-allow inventory to be input and stock takes to be completed quickly
  • Electronic Supplier product catalogs-allow inventory details to be loaded automatically either via the internet or CD/DVD

Once you ensure the stock management system and its reports accurately allow you to manage inventory:

  • Remove all goods from the system as soon as they are sold.
  • Check regularly to make sure the stock system is accurate against physical stock quantities with spot checks and stock takes.
  • Review stock reports weekly and identify products that are not selling so that appropriate steps may be taken.
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