How to Manage Cashflow by Managing Inventory

Not all businesses have the storage capacity of a big box retailing giant such as Bunnings or a Mitre 10. Stock needs to be constantly moving; cashflow is maintained by managing inventory.

 

Managing inventory is more than just numbers on a spreadsheet – a business’s reputation rests on whether orders are filled or not. New customers remain loyal only to the extent you meet their needs– i.e. give them what they want on time, in full, every time.

 

Let’s take a look at managing inventory and how a good system will keep your clients happy and your cashflow secure.

 

Two questions for inventory management

 

In order not to be left with unwanted items, businesses need to answer two broad questions:

• How much stock is on hand; and

• Is demand for that item likely to go up or down?

 

These are the fundamentals of inventory management:  what you have and what you will need. While the former is a matter of data management, the latter requires more skill and the answer is more accurate as more and varied information is collected.

 

Getting rid of low-cost, high-risk items

 

Inventory management software like Oracle Netsuite OneWorld, Syspro or Quickbooks’ Desktop Enterprise Review are complex system based on the same inventory principles:

• Each item has a dedicated reference number (preferably a bar code)
• Items are tracked continuously from ordering to warehousing to sale
• You can go back in time to see an item’s ordering and selling history

 

Using this data, you can make one of the easiest decisions about stock you will ever make: getting rid of low-cost, high-risk items.

 

Removing cheap products that have unpredictable demand is a good way to start your inventory management spring clean. You free up storage and floor space and reduce inventory costs because there are fewer items to keep tabs on.

 

Focus on your popular items

 

To manage your popular products, apply a marker to your 50 best-selling items on your ordering system. This serves as an indication to staff that at least two month’s supply (or more) of that item must be on hand at any time.

 

Seasonal demand is one way of predicting stock movement – fans in spring/summer, space heating equipment in winter. The other method is what has sold in the past. If you sold 50 items each month for a year, chances are you will need the same for the coming year.

 

What to do when things go wrong…

 

If a popular, well-stocked item suddenly stops selling, you have a problem. Perhaps the industry that uses it is experiencing a downturn. Maybe a new model has captured buyers’ attention, or a company that placed a big order has gone bankrupt, leaving you with excess stock.

 

Rather than allowing stock to take up valuable warehouse space, you can sustain cashflow by entering it into another marketplace.

 

Industrial Clearance is like eBay for industrial stock, whether it’s tools, space heaters, compressors or three phase motors. It’s an alternative solution for moving stock that’s slow to shift through regular means.

 

With a careful inventory management system, you may not need to dispose of excess stock. But it’s nice to know there is an alternative outlet if things do go wrong.  Check out Industrial Clearance here.

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