Business Advice

Part 3 Cashflow: Managing inventory

- March 5, 2017 3 MIN READ

For any business dealing with inventory, one of the biggest struggles is the challenge of effectively managing stock on an ongoing basis.

Inventory management is often one of the key ingredients to growing a successful business and businesses typically have a lot of cash tied up in stock – often resulting in cash flow challenges as well as barriers to expansion and investing in purchasing more inventory.

In fact, effective inventory and order management can be the difference between a business growing and a business failing. And, with 33 per cent of SMEs looking to grow their businesses in 2016 by adding new products of product categories, according to the 2016 SME Directions survey, having good inventory management makes good business sense.

Here are the five most common key reasons you may need to improve the way you manage your inventory to save time, make money and get deals out the door faster:  

1. Cash flow improvement
Cash flow is small businesses is crucial. In fact, in the 2016 SME Directions Survey, 29 per cent of small businesses said that cash flow was their number one concern and 20 per cent said cash flow was restricting their ability to purchase inventory.

When a business holds optimal levels of stock, the impact on cash flow is significant. Working capital is freed up, handling costs are reduced and stock holding can be minimised. Plus, if the business is able to buy products just in time to supply customers, you can limit warehouse shelf time and reduce storage costs.

Overstocking can be a costly mistake. Tying cash up in large amounts of stock can be a risky move, especially if the demand is not there. If the product ends up expiring or becomes obsolete, the stock has to be written off, or significantly discounted, potentially costing the business thousands of dollars.

2. Have real-time visibility over stock levels
Real-time stock availability and sophisticated data analytics of historical purchases allows sales reps to proactively manage both upselling and cross selling opportunities. Sales reps can be alerted to other items a customer has purchased previously or items other customers have purchased when purchasing the same item.

In instances when sales orders are booked for items that need to go on “back order”, there is a high potential for the customer to cancel the order. With real-time access to inventory available at the time of making the order, sales reps can recommend a substitute.

3. Faster processing
The order fulfilment process can be made much more efficient by implementing a few changes within the business.

A good understanding of your inventory performance will allow you to reduce your fulfilment times and purchase products “just in time” to supply your customers, meaning warehouse storage time is lessened and turnover is much faster.

The last thing a small business owner wants is stock sitting around, ultimately costing the business money and impeding growth.

4. Reduce slow moving stock
If you have a clear picture of your inventory you have better visibility over which stock is moving quickly and which stock needs a shake-up to get it out the door. After all, the slow moving stock is what’s really costing you, causing reduced cash flow by tying up cash in stock that’s just sitting on shelves.

Being able to identify this stock means you can put sales strategies in place to move stock, improve ordering of inventory to better respond to customers’ purchase habits, and ultimately improve sales.

5. Manage suppliers better
When you start thinking about inventory, it’s natural to think about the other factors which impact your overall stock situation. For example, are your suppliers taking a week to deliver stock that flies out the door the next day due to popularity? Are they delivering on time and as promised, with complete shipments and without missing items or components?

It’s important to identify inefficiencies and drill down on these points. When you have robust inventory management, you have a better understanding about how your suppliers are impacting your inventory levels and also sales.

Let’s face it, for many businesses inventory is pivotal to your operation and if management practices aren’t up to scratch, it won’t take long before it takes a bite out of profitability and the sustainability of your business. By putting in place solid inventory management practices and tools, you can be sure your business is supported.

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Part 1 Cashflow: Increasing cashflow

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