Inventory management is the efficient mechanism of ordering, storing, and use of the company’s inventory. The process includes the management of raw materials, components as well as finished goods.
Further, the management of warehoused products and work in process items also fall under efficient inventory management.
Inventory management helps to know when to re-stock inventory, what amounts to purchase or produce, what price the products can be sold as well as the timing of sales to be made.
How to organize Inventory for small businesses?
Small businesses need to be cost-effective in the selection of various methods of inventory management. Here are the ways small businesses can use to organize their inventory:
1) Managing purchase orders
Small businesses shall start with creating and submitting accurate purchase orders. Purchase orders are used for the requisition of raw materials or goods to make resale. Managing purchase orders helps in tracking the movement of stock purchases efficiently to placement and payment of bills.
Purchase order management helps the owners to estimate the cash flows of the business and also the need to re-stock the inventory levels. The stock re-order alerts can also tell which items are sold fast and slow and which needs refilling or restocking early.
2) Organizing vendor data
Small businesses need to set up stock and vendor information in their software or daily books. They can use excel sheets however they need to manually organize their spreadsheet. They need to organize data using a point of sale mechanism.
They need to record each product’s information along with subsequent vendor details. The various details that need to depicted are product name, a short description of the product, product category, sizes, regular selling price, reorder quantities, details of the package, etc.
Using the Point of Sale mechanism helps to keep product details organized and in real-time. Further, it helps to track various post-sales aspects such as vendor billing information, payment terms, and contact of the vendor.
3) Tagging and Labelling inventory
This is the step when the inventory comes into the hands of small businesses. This means managing the products on your hand. Tagging means allocating the prices and affixing price tags while product label displays mean using bar code labels, tracking the inventory to speed checking out i.e. selling the product.
The use of good allocation of time to tag and labeling of inventory helps in making quick checkout of the product. The point of sale mechanism emphasizes the use of bar code scanners. These scanners also come with the function of effective labeling and scanning.
ted, labels can be affixed directly to product packaging or attached to hang tags. Some inventory might even arrive prelabeled with manufacturer’s bar codes, which you can also track in your POS. In that case, your job is easy. You can just add a price label.
4) Physically counting inventory levels
This is a very time-consuming task and excessively mundane. However, this process is a must for small businesses. All the irregularities and reconciliations can be easily solved through physical verification and counting of inventories. For tax purchases, annual counting is a must and done at the end of the fiscal year.
Doing physical counts helps to reduce shortages, displacement, and errors in receipt of stocks. To catch these mistakes, counts should be done in a smaller time period. This can include spot counts at the time of receipt of the product from the vendor.
While stock count should be started with inventory in hand, spot counts should be matched to invoice or purchase orders.
POS mechanism can be used by scanning the items and it can be nearly as useful as physical counting. However, when shortages are found, one should resort to physical counting.
5) Reconciliation of differences in inventory
After the physical counting of stocks, the differences if any shall be reconciled. This can be done by following the procedure of reconciliation.
The first step would be to identify the discrepancy in counting. This can be due to inventory missing due to theft, damaged, and not reported and stock recorded as received but not actually received.
In a few cases, it can be just due to reasons owing to wrong labeling. If reasons cannot be known, the stock sheet needs to be adjusted to reflect physical balance in hand.
After the adjustment in the books, the difference in any shall be accounted for loss in inventory as inventory shrinkage.
The small businesses shall carefully look if any human error has occurred intentionally or unintentionally. Further, small businesses can use various security features like access policy to stock and locking systems in order to reduce theft of stocks done intentionally.