Making the most of your inventory
Are you looking for a way to improve your business' efficiency, save money, and ensure you have the items your customers want? Good inventory management practices can help you have the right stock at the right time, improving your bottom line.
Your inventory is made up of all of the items you use to produce your product or service. For manufacturing businesses this includes raw materials, in-progress goods, and finished products. For retail and wholesale businesses, your inventory will contain the items you sell to customers.
Effectively managing your inventory can help you:
- Improve your cash flow
- Make purchasing decisions
- Recognize sales patterns
- Establish forecasts
- Set benchmarks
For many businesses, achieving the delicate balance of meeting customer demands while avoiding over-stocking can be challenging. Carrying too little inventory could drive away customers. Conversely, keeping too much inventory on hand will cost you money: it incurs lighting, heating, insurance, and maintenance costs and takes up space that could be used to display new items.
Implementing just-in-time inventory management practices may help your business achieve that important balance. Just-in-time suppliers deliver stock as it's needed, ensuring that you have the items your customers want without incurring the expenses associated with carrying "just-in-case", or buffer, stock. However, successful implementation of just-in-time strategies requires accurate monitoring and prediction of customer demand.
A healthy turnover rate is also a key factor in reducing costs and increasing profits. As you develop your inventory management strategy, the following tips might help.
- Keep your inventory fresh: offering special discounts and promotions can help you increase inventory turnover.
- Know what you have: keeping track of your inventory will help you identify best-selling items as well as unprofitable products.
- Negotiate with your suppliers: lower interest rates and longer payment terms can help you free up cash.
As a starting place, the Business Development Bank of Canada's inventory turnover calculator can help you calculate your inventory turnover ratio. For more information on making the most of your inventory, visit our Inventory Management section.