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Revisit Your Inventory Management System

Ensure your inventory is working for you.

Inventory: It’s the lifeblood of your business, allowing you to have the goods on hand to fulfill customer orders quickly and completely.

That same inventory, however, can drain your bottom line when it languishes untouched and unsold. Just as a restaurant needs to turn tables to keep a flow of paying diners coming and going, so, too, does a business need to turn its inventory to ensure the money invested into it is quickly recouped and bears a profit.

If your inventory isn’t turning over regularly, it’s likely costing you money, and could be costing you customers, too. Take charge of your inventory by taking on a new approach to your inventory management system. Here’s how.

Commit to a goal of having to restock your shelves on a regular basis. When your storehouse empties, it means you’re making sales

Renew your commitment

If you’ve been in business for a while, you likely started out with a vision, a plan, and an armful of tactics to find, acquire and sell products.

At that time, you would have developed a strategy to build an inventory then market and sell it, creating a cash flow that would establish and grow your business.

Even if you felt warm and cozy looking at your stores of product—the proof that you are in business—you also knew that the longer your goods sat on the shelf, the longer your investment was tied up.

So how about it? Are you as committed today to move that inventory or have you settled into a more laid back attitude?

If it’s the latter, it’s time to get serious—real serious—about turning that product. Whether you’ve lagged on your salesmanship or you’ve discovered that some products simply don’t have long-standing demand with customers, it’s time to take steps to do something about it.

Commit to a goal of having to restock your shelves on a regular basis. When your storehouse empties, it means you’re making sales.

Store only as much as you need—maybe less

It’s a paradox of retail business: To grow your cash assets, you need to buy and resell inventory, yet when you invest in inventory, you tie up your cash assets.

Consider establishing an inventory replenishment method that lets you invest in product only as it sells

Yes, you have to spend money to make money, but it’s a balancing act. If your previous inventory strategy was to invest in large quantities—maybe to lower your per-unit costs—it might have left you with more product than you could quickly sell.

Consider, instead, establishing an inventory replenishment method that lets you invest in product only as it sells. This has been referred to as “just in time” or JIT stock replenishment, used for decades by big companies who don’t want to tie up too much cash in inventory.

The key to JIT success is establishing a reliable source of supply that can get product to you quickly upon confirmation of an order. That fulfillment time should be captured in an “order processing time” you quote to customers, allowing for supplier fulfillment and transit to the buyer.

If you can establish this method of inventory replenishment, you can avoid having so much of your cash tied up, and you can also reduce the cost of storing large quantities of product. And if you’re worried that a JIT replenishment method will incur higher per-unit costs to you, that’s often negotiable with suppliers if you can forecast a volume over time.

Give it a look, and see how you might be able to save on stored inventory and avoid unsold inventory, too.

‘Outsource’ is not a dirty word

Let’s face it, when you’re in business, you need to keep costs down and quality up.

It’s a good idea to keep a small amount of inventory on hand in case you need to replace something for a customer. Also, consider performing follow ups with your customers to ensure they have been satisfied

Sometimes, when it comes to inventory, there are others out there who would simply do a better job than you—those to whom you might outsource the storage and fulfillment tasks of your business.

Akin to finding suppliers who might provide JIT replenishment to you, there are also fulfillment experts out there who can store and ship the goods you sell.

Even if you do need to make high-volume inventory investments, it could very well be cheaper—and easier—if you have a contracted warehouse store it for you and then ship goods direct to your customers as you make actual sales.

If you can adopt this inventory management strategy, you can reduce your own storage costs as well as managing the actual order processing. Sure, you’ll need to pay fees to the warehouse for its storage and services, but that could be cheaper than managing it yourself.

Plus, when you provide your fulfillment warehouse with proper forms and statements that bear your company information, your customers will always believe they’re dealing directly with you.

Of course, it’s a good idea to keep a small amount of inventory on hand in case you need to replace something for a customer. Also, consider performing follow ups with your customers to ensure they have been satisfied with the products they’ve received, this being a checkup on how well your fulfillment warehouse is performing.

Keep close with your suppliers and customers

Keep in close contact with partners to ensure your source of supply remains reliable and your customers remain satisfied

When you set out to adopt any new inventory strategy, especially those described here, it’s imperative you commit to relationships with both suppliers and customers.

If you establish a type of JIT replenishment or outsourced inventory storage and order fulfillment method, you’ll need to keep in close contact with these partners to ensure your source of supply remains reliable and your customers remain satisfied with the products they receive.

Watch for any interruptions in supply and work closely with the supplier to mitigate delays in inventory availability. Also work with your suppliers to negotiate terms based upon your sales forecasts. If you’re turning a regular amount of goods, you’ll stand a good chance to gain favorable agreements that can improve your profits.

On the order fulfillment side, check in with your warehouse to confirm your inventory on hand and ensure nothing damaged or otherwise compromised would ever be sent to a customer. And, as inventory sells, be sure what’s left is consolidated to keep your regular storage costs down.

Inventory is what makes you money, but it’s not necessary to tie up your money to manage it smartly. Maybe it’s just time for a renewed inventory management system.

About the author

Dennis L. Prince
Dennis L. Prince has been analyzing and advocating the e-commerce sector since 1996. He has published more than 12 books on the subject, including How to Sell Anything on eBay...and Make a Fortune, second edition (McGraw-Hill, 2006) and How to Make Money with MySpace (McGraw-Hill, 2008). His insight is actively sought within online, magazine, television and radio venues. Opinions expressed here may not be shared by The Online Seller and/or its principals.

  • Great article Dennis, thank you. Do you have a top 10 list for recommended inventory management systems for multi-marketplace selling?



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