How to eliminate the ‘out of stock’ answer for your customer orders

For many SME retailers, wholesalers or distributors and manufacturers, the largest asset on the balance sheet is inventory.

Raw materials, goods in process, finished goods and merchandise stock all represent various forms of inventory encountered in a business.

Each type represents money tied up until the inventory leaves the business as a purchased product.

All these inventory contribute to profits only when their sale puts money into the cash register or the bank.

To succeed in business and continuously grow, you must properly manage your inventory.

Otherwise, you will loose money through theft, pay for undelivered good or even release goods that have not been paid for.

Stocks represent a big portion of the business investment and must be well managed in order to maximise profits.

This is one of the biggest pains of many SME owners for sure.

Many businesses have shutdown due to losses arising from poor inventory management.

If you do not control your inventory, you will be unaware of the true state of your business, suffer lots of inefficiencies and this can be very costly.

Many business owners believe keeping high inventory levels is the best way to do inventory control as they will not run our of stock.

However, high stock levels that stay in the shelves for long mean lots of money is held by the stocks.

The stocks provide only a constant profit even over time meaning that the yield will be lower the longer the stock lasts.

Indeed, many business end up suffering losses through clearance sales where they offer uncleared stock at low prices.

Some of the best practices in inventory management include maintaining a good assortment of products but again not too many.

Having an excessive variety may mean keeping very many products covered in dust and even forgetting some products exist.

OBSOLETE ITEMS

Increasing the inventory turnover but to a good profit level.

Some businesses are turning over millions of shillings and making very small profit margins meaning very high volumes are needed for reasonable profits to be realised.

Keep stocks low, but again not very low. Ensure that customers do not always hear the “out of stock” answer to their inquiries.

Consider making volume purchases to obtain lower buying prices. However, don’t over buy and end up over stocked holding lots of capital in stocks. Get rid of obsolete items.

Those items in your stock list that have not had movement in months or years and continue to hold up capital.

Try and balance out the costs of inventory with the benefits of inventory.

This involves analysing the true costs of carrying inventory from direct costs such as storage, insurance, taxes etc and indirect costs such as money tied up in the inventory.

Try reducing small amounts of inventory investment and you will be surprised by changes you can get in your business cash position.

For example, this can ease your cash position and ensure better cash flows without a line of credit.

Successful inventory management requires accurate and disciplined record keeping system. You need proper information to make sound inventory management decisions.

I know that many people use manual record keeping methods. This works wells for small operations.

However, as your number of items, supplies and general importance of inventory increases, it is good to consider the use of a computerised system for inventory control.

Whether you are using a manual or computerised inventory management system, the important thing to know is what and how much do you order, when to order and at what price, effective stock in and out controls, how to ensure that the inventory produces a profit not a loss.

The author is the CEO/Founder of Openworld Ltd

Email: [email protected]

@DorcasMuthoni