By Marcus Lansky
Small business owners have to do much more than just show up every day. You also have the burden of making the right decisions, which means asking questions like whether your systems are running effectively, what you need to grow, and how to solve problems that are holding you back. From the outside looking in, running a business can seem like a walk in the park, but every business owner knows that it’s a complex, deeply layered system that requires you to balance a large number of moving parts — often at the same time.
If your business involves selling a product, these interlocking systems include how inventory is handled. So much of your success is riding on what happens with inventory – from the time you order products to when they land in the hands of customers. The complexity of the supply chain for small business can often seem daunting, which is why Micosoft.com suggests creating partnerships with your suppliers (and creating a sense of security within that partnership), learning about market intelligence and the economic landscape to help with risk management, and using mobile technology to help stay on top of any hiccups that occur along the way.
As you can see, the complexity of the process, as well as potential problems, is why any business should be prepared for inventory pitfalls – and have a plan for how to avoid them.
There are multiple scenarios that can lead to inventory falling short of what you need. A best/worst-case scenario is growing faster than you can fill orders. Growth is good, right? Of course it is! But it often comes with growing pains, like receiving orders and then realizing you don’t have the inventory to meet customer demand.
Another situation you want to avoid is an imbalance in inventory that keeps you from growing. As Small Business Trends explains, you need to discriminate and set priorities when it comes to choosing inventory. They recommend going by the 80/20 rule, in which you can expect 80% of sales to come from about 20% of your inventory. When you know where that 20% of sales comes from, you can prioritize stocking those items so you maximize revenue.
How to Avoid It
The solution for either of these situations is to have a solid inventory management system. Small businesses may start out with a simple tracking system like Excel spreadsheets, but doing this has major limitations. Online inventory management enables you to track inventory accurately, plus you can run reports that show you exactly what you’ve sold, who your customers are, and key trends. Analyzing this data is how you can anticipate those best-selling products and make informed decisions about what you stock. Knowing who your average customer is also means you’re less likely to miss the mark on reaching your target audience and are more likely to increase sales, according to BigCommerce.
Too Much Inventory
Determining how much inventory to stock is a balancing act because you don’t want to lose sales by failing to stock the right products, and at the same time, you want to avoid having inventory that sits in your store room. Lost inventory is lost money, and this can happen when a product is out of date or is simply no longer on trend.
How to Avoid It
To reduce the amount of dead inventory you end up with, while maximizing the inventory that’s most profitable, any small business can adopt inventory optimization strategies. Some of these strategies include having good relationships with vendors, monitoring inventory frequently, and making decisions based on past trends. Of course, at the end of the day, you can’t do any of these things if you don’t have a system for warehouse management that’s both reliable and effective.
Sometimes small business owners think they have to start small in order to stay within a tight budget. However, the way you manage inventory can make or break your business. This is why you can’t afford to wait before getting the right tools and making a plan to avoid major inventory pitfalls.
Born with a severe spinal condition, Marcus Lansky took the challenge to be able to walk again. With the will and aid of numerous individuals from the medical field and a whole lot of cheerleaders, he was able to take his first steps and take on the world. He then created his site, Abilitator (abilitator.biz), as a way to reach out to those who are disabled and show them that becoming an entrepreneur is a goal they too can achieve.