9 Proven Tips to Control Your SMB InventoryThursday, April 25, 2013
Posted by Andy Wendt
By Crystal Wells, Product Marketing, Vendio
Controlling inventory is the ongoing process of identifying and managing the constant flow of items into and out of an existing inventory. When you don't know exactly what inventory you have available, where it is located, or where it is for sale, it's going to be difficult to manage your inventory effectively and can lead to an ever-increasing number of problem areas.
1. Make sure all your items are for sale. Items that are on hand but not listed for sale can't be sold. Thus, if you have boxes of items that are not listed for sale, they are not inventory (they are storage).
2. Understand your lead time. Lead time is the amount of time between order and arrival. While most sellers would love to run their business using "just in time inventory", uncertain lead times can cause a seller to run out of inventory. Lead time varies by supplier, seasonality, and even by item.
3. Know how much inventory you need. If you can't know exactly how much inventory you need, it's a good idea to have some "buffer stock" on hand to mitigate shortfalls. Buffer stock is extra inventory a seller maintains to ensure that they do not run out of an item.
4. Sell on Multiple Channels. If your in-stock items are not on multiple markets, you are missing opportunities for sales. Gain access to different customers from each of the big three (Amazon, eBay, and your own website). The pre-built marketplaces are a reliable source of customers, but keep in mind you may end up competing with the marketplace itself for certain types of inventory.
5. Automate your inventory system. Don't kill your business by juggling spreadsheets in order to manage selling across channels. Use a third-party inventory management solution to share and track your inventory across channels and eliminate the need for maintaining separate spreadsheets.
6. Know your inventory costs. The cost of inventory is more than just the price you pay for an item. Here are typical costs associated with maintaining an inventory:
- 6-12% Opportunity: What you could have made if you put the money you have tied up in inventory elsewhere (i.e. putting the money in the bank, mutual fund or other investment.)
6-12% Obsolete Inventory: Excess inventory that doesn't sell before it goes out of fashion, or is no longer in demand.
- For example: Beta/VHS/DVD/Blue Ray
- 3-10% Taxes and Insurance: This applies not only to inventory, but also to employees.
- 2-5% Warehouse/Storage: The cost of your warehouse, utilities and storage.
- 2-4% Handling: Your time and employee time spent handling inventory. This could include physically counting inventory, keeping inventory clean and organized, tagging and labeling, etc.
- 2-4% Breakage and Theft: Inventory that is broken, damaged, or stolen and thus unable to be sold.
- 1-4% Clerical: Purchasing, keeping records, and any other associated work.
7. Measure your inventory turn. Inventory turn is a way to measure of the number of times inventory sold in a time period (such as a year). It is equal to the cost of goods sold divided by the average inventory. (Inventory Turnover = Cost of Goods Sold÷Average Inventory). Once you have the metrics, you can make improvements and measure results.
8. Don't hold onto the past. If you inventory is obsolete or is just not selling, don't feel guilty about disposing of it. All merchants have made bad purchasing decisions at one time or another. Give yourself permission to forgive your mistakes and let it go. There are many channels and methods of disposing of obsolete inventory.
9. Beware of the "long tail". Long tail cost is the cost of inventory storage and distribution. When inventory storage and distribution costs are low, it becomes viable to sell relatively unpopular products with long sales cycles; conversely, when storage and distribution costs are high, only the most popular products are sold quickly enough to make a profit. Most of eBay's and Amazon's fees are collected after the sale, so long-tail items can seem attractive as distribution cost is very low. However, if long tail items creep from being a small portion of your inventory to being a large portion, you'll continually struggle to equal "last month's sales" vs. being in a growth mode.