What is stock control and inventory management?
You need to know what you have in stock, when you need to replenish it, how much you need to order and how much it is going to cost.
This might sound very basic, but it is crucial for all businesses to manage their inventory properly. It costs money to buy, it takes up space and – if you buy the wrong materials or the wrong quantity – it can end up being thrown away.
Inventory management is not a standalone philosophy. It permeates every part of your business, from supply chain management via warehousing through to the final delivery of orders. It has a major impact on your cashflow and product availability.
Get your stock control wrong and you could lose customers. But get it right and it will help your entire operation run smoothly.
Why hold inventory?
It would be great if you didn’t have to hold inventory – or, at least, nothing more than the bare minimum. You might already be in this position if you follow the Just In Time philosophy, which means you can retain your cash by ordering materials and components only when you need them.
There are various benefits that come with Just In Time manufacturing, including better real-time quality control, cashflow benefits, low storage costs and cheaper labour. But unless you have adopted this way of working, you might be holding a significant amount of stock within your business.
There could be several reasons for this – some by design and some down to circumstances. Perhaps it is left over from a previous order. Maybe you bought it in anticipation of future orders. You might have had a bad experience with lateness in your supply chain, so you are holding on to reserves. Or you might have previously bought in bulk to secure a lower unit cost.
Why do you need to manage your inventory?
A lack of inventory management can impact your business in many ways, including:
- The cost of your raw materials
- Storage requirements
- Internal organisation
- The prices you need to charge your customers
If you suddenly find you need to order more materials in a hurry, your supplier might charge you more for expediting the delivery – if you can secure a last-minute delivery in the first place, that is.
On the other hand, if you have too much inventory, you might have spent more on it than necessary. That money could have been better spent elsewhere. And if some of the inventory you brought in ends up going out of date or being overtaken by a newer specification, you might never use it.
The storage needed for excess inventory can be expensive, in terms of both physical warehousing costs and the extra labour required to manage it.
And do you know what is where? It’s all very well being fully stocked, but if you are spending half your time looking for the metaphorical needle in a haystack, it will cost you time and money.
Then there is First In, First Out (FIFO). The idea behind this practice is that your oldest stock should be shifted first. It will help prevent old inventory languishing at the back of the warehouse, continually passed by in favour of stock that has arrived more recently.
Depending on your sector, overlooked inventory can pass its sell-by date, be usurped by a newer specification or become a useless component of a now non-existent product.
In a nutshell, poor inventory management can result in a financial hit for you, ultimately resulting in price rises for your customers.
Inventory management software benefits
Spreadsheets are the most basic way to manage your inventory, but problems can quickly arise with them.
They take time to draw up and update, becoming unwieldy as your business and the number of product lines grow.
They don’t synchronise with any software you run elsewhere in your business, meaning manual reconciliation is necessary.
And an input error can lead to all sorts of complications – not least all the work required to track which erroneous data is the source of the problem.
By opting for inventory management software instead, you will have a system that can cope with your business as it changes and expands. Adding new products, new customers, new sales channels and even new factories is something this sort of software is designed to cope with, and it is easier than trying to manage things manually.
It is much less labour-intensive, and it can give you up-to-date information at the touch of a button.
Inventory management software can perform multiple tasks that manual spreadsheets cannot do. It can work out the best time for you to order new supplies. It can also look at the cost of ordering components and materials in advance and storing them, as opposed to simply ordering them nearer the time you need them.
A fully integrated system
Using software that includes point-of-sale functionality will help you track your stock in real time. As something is sold or collected by a customer, the data will be updated.
It can coordinate with barcode scanners, process payments and produce the relevant documentation.
Your inventory management system can ‘talk’ to other software within your business, too, such as customer relationship management systems and accountancy software.
And if your inventory management software offers warehouse management, it can make locating your stock when you need it easier. If your business is small this might not be your main priority at the moment. As you expand, though, so the software scales up alongside your business, and more of these extra features will come into play for you, and FIFO can be built into your system.
But don’t forget the human touch…
Even if you have absolute confidence in your software, you should conduct the occasional ‘real-life’ audit of your inventory – perhaps every six months.
It is not just about showing that you are on your guard and keeping an eye open for potential issues; it will also provide you with reassurance that the data you look at on a daily basis is accurate.
If your business could benefit from better stock control systems, find out more about our Manufacturing software solutions today.