Effective inventory management is key to running a profitable business.
You’ve probably heard terms like “lean manufacturing” and “just in time” delivery – examples of streamlined inventory management techniques. Consistent with these techniques, we like to think of inventory as cash in transit. Every day you have inventory that is not being sold, your profit margin erodes. Here are some key tips to get your inventory strategy on track:
Get an attitude
Your attitude about inventory is the key to successful inventory management. Think about inventory as a wasting asset. Unless you are dealing with wine or single malt scotch whiskey, inventory does not improve with time. Inventory becomes less valuable with every passing day. It takes space, heat, light, power, handling, insurance and, of course, interest to carry. Every day you have inventory and no sales your profit margin will erode. So as youre planning how to run your small business, try not to carry any more than is absolutely necessary.
Don’t be shy – it’s a competitive market out there and suppliers want your business. Negotiate with them to extend payment terms. Consider utilizing drop shipments. You can even negotiate consignment arrangements or vendor-managed inventory techniques.
The way in which you finance inventory is critical. A basic point in inventory management is to ensure that your payment terms are longer than the terms you extend to customers. Consider different financing options such as purchase order financing or asset-based lending. The old axiom “cash is king” applies.
Inventory should be eliminated regularly by using special promotions, unique discounting, barter exchanges and charitable donations. Remember - keep that inventory moving, keep it fresh and keep your customers happy with special offers such as, “half off” or “2-for-1.”
Knowledge is power
Like never before, new technologies and techniques enable you to command knowledge about how you run a business. With knowledge comes the ability to control your destiny. So use the best information system you can to capture history and forecast demand. Stay close to your customer so you know what his needs are. Stay “cozy” with your suppliers to learn about demand for their products and about new product introductions.
We know as well as anyone that you’ve got a lot of things to think about in order to run a small business like an ace. Though it seems like one of the less dynamic or demanding aspects of your business, inventory management can actually be the lynchpin between you and profitability, so make sure you’re proactive about it.
Content developed by startupnation.