Tell me, if this sounds familiar, you have a way too much inventory and you don’t know what to do with it. Or how about a customer places an order, and you don’t have those items in stock. So if you’re an e-commerce entrepreneur and you’re dealing with problems like these, that’s because you need to improve your inventory management. So you’ve come to the right place, in today’s video we’re going to be talking about what inventory management is and how to make it efficient so that you can save yourself money, time, and logistical headaches in the future. Okay.
What is Inventory Management
So first of all, what is inventory management? So to put it simply inventory management is how you organize and how you manage your stock. So your goal with inventory management is to strike a perfect balance. You want to minimize the cost of holding inventory, but you still want to have enough so that you’re getting your product into customers’ hands as quickly as possible. And finding that sweet spot is going to be at the heart of every successful business. So why is proper inventory management important? Okay. Think of it this way. Inventory is product that you’ve already paid for with cash, and you’re going to sell it for cash. But while it’s sitting in your warehouse, it’s definitely not cash. Money spent on inventory is money that is not spent on growth. So that being said, how does poor inventory management actually affect your business? Well, if you don’t have enough inventory, you could be losing out on potential sales. Your days might be filled with making panicky phone calls to your suppliers or making special trips to the store. But then on the other hand, if you have too much inventory, you might be holding onto products that are going to go bad, or maybe they’re going to go out of style before you could even sell them. So, especially if you are the only one that’s running your company, you want to make sure that you are focusing your efforts on growing your company, not putting out fires because of poor inventory management. So here’s how you can start making your processes more efficient.
Tip number one – use Shopify
So you’re gonna want to start by signing up for Shopify and you guys already know that I had to make this number one, because if you run your business with Shopify, inventory management is already built in. Shopify helps remove that human error as much as possible, and with inventory tracking on Shopify, all you really have to do is input how much product you have and then Shopify is going to do the rest automatically for you. So if you sell one product, it will subtract that. Or if you get a return or you get a shipment incoming, it’s going to add that for you. It’s nice because the inventory tracking that comes built in will help you to avoid selling products that you don’t have, or it will let you know when it’s time to order more. So whether you’re just starting out or maybe you’re already an established business, the inventory tracking that comes with Shopify, it makes processes so much more streamlined, so much easier. And I’m not just saying this, I truly believe it. When my friends ask or my clients ask what they should do, I always say Shopify. Um, so if you do want a free 14 day trial with Shopify, feel free to hit the link in the description box and outside of just inventory management, Shopify is the leading tool for selling online. So I will be sure to leave a link for you guys in the description box for that free trial.
Tip number two is to set par levels
To make inventory management easier, you’re going to want to set up par levels for each of your products. Par levels are the minimum amount of product that you should be having on hand at all times. So when your inventory dips below that number, that’s how you know it’s time to order more. So if possible, you’re going to want to order the minimum quantity that will get you back above par. So to determine your par levels for each product, take into account, how quickly the item sells and how long it would take to get it back in stock. I’ll leave a little formula for you up here on the screen. Now I feel like this is a little bit intense, might be a little bit daunting. But trust me, if you do do this research upfront, this is going to help you order in the future, and you’re not going to be second guessing how much inventory you should order. But one thing that I do want to mention is that over time variables might change. So you want to make sure that you were checking up on your par levels during different seasons, just to see that they are still accurate and don’t be afraid to adjust your par levels up or down as you evolve as a business.
Tip number three is FIFO
So the next step is the FIFO method. And this kind of sounds like a cute puppy, but actually it stands for first in, first out. So what this means is the first inventory that you get will be the first inventory that is sold. So the oldest products are going to be going first. Now this is especially important if you’re selling perishable inventory. So if you sell food or skincare, You’re definitely going to want to keep track of this so that you’re selling your inventory before it goes bad. Even if you’re not selling perishable items, this is still important to follow because over time products become obsolete, maybe boxes get worn out, things go out of style. That kind of thing. So, if you’re working with a fulfillment center, you can definitely just double check that they do do this, but if you’re managing your inventory at home, say in your living room, all you have to do is put the oldest products in at the front and the newest at the back, so that you’re always sure that you’re reaching for that old product. As you’re packing your orders.
Tip number four, manage your relationship with your supplier
Having a healthy relationship with your supplier is going to be beneficial for you. So, for example, let’s say you have too much inventory and you want to return some of that stock. Or maybe you need them to speed up an order. They’re going to be more likely to work with you if you are in good standing. And having a good relationship is about more than just being friendly. It’s about having good communication and it’s about being proactive as well. So for example, if you let them know in advance that you’ll need more inventory, they can preemptively ramp up production, which makes their Workday smoother, and your relationship stronger.
Tip number five is prepare a contingency plan
So when it comes to inventory management, it’s not about if an issue is going to arise, it’s about when, so you want to prepare a contingency plan. So for example, when I was working with an e-commerce jewelry company, I ran this email campaign and it did a lot better than we had anticipated. So we oversold or necklaces. It was definitely a hassle in the moment, but it helped us develop a contingency plan that included not allowing the option for customers to buy when things were out of stock on Shopify. But instead we would allow them to sign up for an email notification when it was back in stock. Other classic examples of inventory management road bumps include well, number one, this is super common not having enough cash flow. And not being able to pay for products that you desperately need. Here’s another one you might also make a miscalculation in inventory and have too much or too little stock. And then also your manufacturer could run out of your product and you have sales orders to fill. So these types of hiccups are happening all the time, so you want to make sure that you are looking at your own supply chain and thinking about some of those things that could potentially go wrong and brainstorming ahead of time.