When running a retail business – your most important asset is your inventory!
In a basic sense, inventory refers to the storage of products. No matter your business model (B2C, B2B) all retail clients will need to amass inventory to be successful. Also known as stock, inventory comes in all shapes and sizes and can be comprised of both complete products or components used to create a finished product.
Inventory is an asset, which means it has positive net cash value. For businesses, it falls under the same category as asset infrastructure like cars, buildings, computers, etc. Because your inventory has real value – it can be classified as collateral you can borrow against.
Now on to the good stuff – let’s talk about Inventory Management!
In a nutshell – effective inventory management assures that you keep track of what products you have, how much is actually available for sale, and when you need to restock. For large business all these moving parts typically require an Inventory Management System. For smaller shops, simpler and more readily available tools such as Microsoft Excel or ledgers could also do the trick.
Inventory makes you money when it turns, which means that you sell or fully utilize your existing stock (this is called Inventory Turn). Most companies work to maximize their inventory turns to increase their revenues, which are usually recorded annually. For example, a business annually having 6.3 turns, successfully sold its entire stock of goods over six times that year!
As you can probably imagine, effective inventory management requires careful estimations and trend analysis. Analyzing lead times, sales forecasts, and supplier logistics can help you correctly estimate when you will need to resupply. Attention to detail here can also help you avoid overstocking and running high inventories which can amount to costly ad-ups and cash-flow disruptions.
In the end, inventory management will always be a continuous cycle. Set up quality infrastructure and best practices on the front-end, and your business inventory journey will be one smooth ride!