As we all know, inventory management consists of many moving and complex parts. Having an inventory management system is important so that you can keep track of what comes in and out of your warehouse. But, what happens if your business is growing and your old system isn’t cutting it? Do you create a new plan from scratch or overhaul an old one? In today’s blog, we’ll go over the components you need to consider when creating an inventory management system that scales alongside your business.
Creating Sales Projections
In order to determine how much inventory you need to buy or make, you need to figure out how much you are going to sell. If you already have an operating business, you can look at sales history to help forecast how much you will sell in the future. You can also look at industry trends to better understand the current status of the market.
Another way to understand sales projections and demand for inventory is by using formulas. One commonly used formula is the sell-through rate. This formula compares the amount of inventory a retailer receives to the amount that is actually sold and it usually is expressed as a percentage. You can use this formula to see which items might be potential best sellers and which items you may need more or less of.
Sell-Through Rate Formula:
Units sold / Units Received into Inventory x 100 = Sell-Through Rate %
Inventory turnover will tell you how quickly you move a certain product out. The faster you turn your inventory, the more you will need in a year. You can use a turnover-rate formula to determine your turnover rate for a specific time frame. With a healthy turnover rate, you can prevent inventory from sitting in your warehouse too long.
Number of Units Sold / Average Number of Units = Turnover Rate
Since manually counting inventory often costs a lot of time and money, cycle counts are one way to avoid inventory shrinkage. This will allow you to keep track of your inventory so you don’t lose product during receiving errors or improper exchanges. Count a different category of product per month and continually fix errors as you go along. This will ensure that your inventory levels are where they are supposed to be.
Building a strong relationship with the right vendor can directly affect your financial success. Focus on vendors who have open stock inventory and can fill-in your orders as needed. On-demand ordering is also a great way for direct-to-consumer brands to manage inventory. With on-demand manufacturing, you can react to your customer demands instead of warehousing inventory.
An Inventory Management System that Grows with You
One way to gain control of your inventory management and order fulfillment is with IntelliTrack Inventory. Whether you fulfill orders from an eCommerce website, or your customers are internal to your company, you need to know the quantities and locations of all inventory items at all times. IntelliTrack Inventory will help you keep track of your inventory, even as you grow. Learn More >>
This blog post was based off an article by Shopify. Read full article here.