10 Practical Ways to Reduce the Cost of Inventory

Posted on October 7, 2017 by dearsyst

In a competitive market, cutting costs is a smart way to stay one step ahead of everyone else.

So what costs should you cut?

Well, you could hire a 3PL provider to reduce overhead costs, or replace Excel inventory management with a more efficient system to increase your productivity – thereby reducing labor expenses.

The best cuts to make are in areas that already cost you a lot of money.

There’s one area of your business that costs 20-30{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3} of your total inventory, and you should do everything possible to reduce its impact on your bottom line.

What is it?

Your cost of inventory.

There are many ways to cut the costs of inventory, and we’ll show you 10 ways that you can use today.

Before we do that, let’s define the cost of inventory.

What is the Cost of Inventory?

The cost of inventory is the “carrying cost” of holding and storing inventory over a certain period of time. It’s calculated to determine the amount of profit a business stands to gain. It also helps you determine how much more or less inventory you need to satisfy demand.

Types of inventory costs include:

– Purchasing costs

– Taxes

– Labor costs

– Obsolescence

– Insurance

– Security

– Transportation and handling

If you need help calculating your cost of inventory, you can use this formula.

If your cost of inventory is already higher than it should be, or you know it could be lower, then let’s check out a handful of ways to reduce those costs.

How Do You Reduce the Cost of Inventory?

The cost of inventory can quickly add up, leaving you with little profit and overblown expenses. You can reclaim your cash flow and grow your revenue by applying only 1 or 2 strategies for reducing the cost of inventory.

Here are 10 strategies to choose from, any one of which could help you reach your desired amount of inventory costs.

Avoid Minimum Order Quantities

A minimum order quantity (MOQ) is defined as the smallest amount or number of a product that a company will supply.

MOQs are very common, and they’re used by suppliers and manufacturers to unload more of their inventory on retailers and wholesalers – reducing their cost of inventory but increasing yours.

They might offer you deals to sweeten their MOQ, like “buy 50 widgets and receive 10 free widgets,” but this only adds extra widgets to your inventory you may not be able to sell.

There are a few ways to avoid the burden of MOQs.

If you’re friends with a fellow business owner who needs the same stock as you, pool your cash and buy it together and then split it between yourselves. This can go a long way in reducing your inventory costs.

You could also offer to pay your supplier a little more money for less inventory, enticing them to forego their MOQ policy – which could save you more money in the long run.

Of course, if you can negotiate a deal with your supplier to dismiss MOQs altogether without paying extra, that would be ideal.

Know Your Reorder Point

A reorder point formula will help you determine when you need to order your next shipment of stock.

Knowing your reorder point can ensure you never order too much and risk obsolescence, but never order too little and risk stockouts.

Organize Your Warehouse

An organized warehouse will help you efficiently sort your inventory and quickly pick it later. An unorganized warehouse will increase travel expenses along with the likelihood of misplaced or damaged inventory.

This is especially true in major warehouses where workers are traveling thousands of square feet for a single piece of inventory.

The key to laying out your warehouse is putting your fast-moving items up-front in the staging area. This optimizes your pick, pack, and ship process.

An added bonus is that a well-designed warehouse optimizes your stocktaking process, too.

Get Rid of Obsolete Stock

Holding too much inventory increases the chance that the stock you thought would sell is now taking up valuable space in your warehouse and costing you more money than you paid for it.

The essence of reducing the cost of inventory is inventory reduction.

The less you have, the less your costs will be. And obsolete stock is the most costly inventory you can have.

If you already have a lot of obsolete stock, you can try product bundling to sell more of it, or try discounting them individually.

If you can’t sell them, you may be able to donate your obsolete stock for a tax write-off.

Once you clear away the obsolete stock, you’ll have more room for fast-selling inventory.

Implement a Just-in-Time Inventory System

Just-in-time inventory (JIT) management is a method for keeping almost no inventory in your warehouse at all, but instead, ordering everything you need the moment you need it.

It’s a form of lean manufacturing that would mostly eliminate the cost of inventory.

It requires you to:

– Develop a strong relationship with your supplier

– Find a long-term supplier for each purchased part

– Shorten your production cycle

– Separate your repetitive orders from you one-stop business

– Institute or improve your quality control program

While JIT isn’t for everybody, it’s a proven way to dramatically reduce your inventory costs.

Use Consignment Inventory

Consignment inventory allows you to offload a portion of your inventory to the retailer carrying your inventory.

The catch to this arrangement is that the retailer doesn’t pay for the inventory upfront. Instead, they pay you when they make a sale.

If you’re OK with that, selling on consignment can be an easy way to reduce your cost of inventory.

Reduce Your Lead Time

Lead time reduction is the process of shortening the time it takes to receive a purchase order.

The shorter, the better.

Lead time reduction works to lower your cost of inventory in 2 ways:

1. It allows you to keep less safety stock inventory – which means less obsolete stock in the future

2. It allows you to order less stock more frequently – making it possible to reduce the size and cost of your warehouse

Monitor KPIs

Tracking your inventory KPIs is an essential part of reducing costs in all aspects of your business, not just inventory costs.

The cost of inventory is certainly one major metric to track closely.

But you should also be measuring your write-offs and write-downs, your rate of inventory turnover, your cycle time and fill rate.

By comparing your numbers against your industry’s averages, you can assess how well you’re managing your business and warehouse, and how you can reduce your cost of inventory among many other costs.

Use a Perpetual Inventory System

The debate between periodic vs perpetual inventory is mostly coming to a close as more and more businesses recognize the cost-cutting power of a perpetual inventory system.

Perpetual inventory allows you to track your purchases and sales in real-time, allowing you to automatically order stock when necessary and maintain a healthy level of inventory.

Use Accurate Forecasts

Monitoring your business in real-time not only lets you know when you’re low on stock, it also helps you know your best-selling items, your worst-selling items, and trends in demand.

Forecasting demand through accurate reports allows you to order just enough to satisfy demand throughout the year, for every season.

You can also determine what products you need to discard, what you need more of, and give yourself the opportunity to test new products in the market.

But what SCM software will you need to acquire these in-depth reports?

A Must-Have Tool for Reducing Your Cost of Inventory

A cloud-based inventory management system is the tool you need to lower the cost of inventory.

It will help you know your reorder point, streamline your stocktake, lower your lead time, and deliver accurate metrics for tracking KPIs and forecasting demand.

The better you manage your inventory, the easier it will be to cut its costs.

If you want the tool that lets you manage your inventory from one intuitive interface, from anywhere in the world, whether you have 1 warehouse or 10, we can give it to you.

Start your free 14-day trial today

Periodic vs Perpetual Inventory: Here’s What You Need to Know

Posted on July 22, 2017 by

Periodic vs perpetual inventory: which is right for your business?

Every physical goods business has to make a choice between periodic vs perpetual inventory.

Unfortunately, it’s hardly an easy choice to make.

On the one hand, you have the manual, inexpensive, tried-and-true periodic inventory tracking system that has been used since businesses have had inventory to manage.

On the other, you have the fairly new, technology-enabled, constantly evolving perpetual inventory tracking system that is driven by innovations in inventory management solutions.

So, which one is right for your business?

To answer that question, we’ll look at the definitions for both, then compare the advantages and disadvantages of periodic vs perpetual inventory.

By the end, you’ll have a clear understanding of what each can offer you, and be better prepared to choose the right fit for your business.

What is Periodic vs Perpetual Inventory?

Periodic Inventory

A periodic inventory management system is exactly what the name suggests:

Inventory is tracked by a periodic physical count of every item in stock.

Essentially, it tells you the beginning inventory and ending inventory within the accounting period, but it doesn’t track inventory on a day-to-day basis.

These physical counts can be conducted weekly, monthly, quarterly, or yearly depending on the size of your business, the quantity of your stock, and the rate of inventory turnover your business experiences throughout a fiscal year.

Periodic inventory is typically taken using pen and paper or excel spreadsheets.

Perpetual Inventory

A perpetual inventory management system is also known as a continuous inventory system.

Here’s how it works:

Perpetual inventory systems track sold and stocked inventory in real-time; they update your accounting system whenever a sale is made, inventory is used, or new inventory has arrived.

All of this data is sent to one central hub that any authorized employee can access.

Through the use of barcodes, POS systems, and RFID scanners, perpetual inventory makes it possible for you to know almost everything about your inventory at any time.

Advantages and Disadvantages of Periodic vs Perpetual Inventory

Now that you know the definitions of periodic and perpetual inventory, let’s look at what each has to offer you and which would make the most sense to use for your business.

Advantages of Periodic Inventory

Reduced Setup Costs

Periodic inventory uses a minimal amount of materials – allowing quick setup on a tight budget. This is ideal for small businesses or startups without much capital.

Minimal Experience Required

Periodic inventory doesn’t require complex devices or technology – allowing inexperienced business owners and managers to start using the system on day one with minimal training.

Simple Record Keeping

Periodic inventory relies on a few simple records:

The amount of inventory currently on hand
The amount of materials purchased
The amount of inventory sold

With only these 3 metrics, a periodic inventory management system can be easily implemented.

Disadvantages of Periodic Inventory

Disruption of Business Hours or Overtime

To manually count inventory, you’re going to need to close down during business hours or pay your employees overtime to come in late.

The cost of lost business and higher labor on a regular basis could outweigh the savings you might receive from this low-tech option.

Increased Risk of Errors

Humans are more error-prone than computer systems.

It’s easy to double-count or miscount inventory, lose files, or perform incorrect calculations based on incorrect data.

Mistakes like these can lead to imprecise forecasting, stock outs, or obsolete inventory. All of which could be mitigated with a perpetual inventory system.

Advantages of Perpetual Inventory

Proactive Monitoring of Inventory Turnover

By tracking inventory turnover in real-time, perpetual inventory makes it possible to order more stock as soon as you get low. This is especially helpful if you practice just-in-time (JIT) inventory.

Manage Multiple Locations with Ease

Perpetual inventory gathers all data into one centralized inventory management system – making it easy to operate multiple locations and stores while tracking the inventory for all of them.

More Informed Forecasting

Perpetual inventory can generate reports on buying patterns throughout the year which allows you to forecast demand spikes and slow periods while optimizing your supply chain around the purchasing habits of your customers.

Disadvantages of Perpetual Inventory

High Startup Costs

Perpetual inventory management systems require a lot of equipment to be installed such as:

Barcodes
RFID codes
Scanners
Computer software
Etc.

This will result in higher startup costs, especially if you have multiple locations. Plus, all your employees will need to be trained to use the new equipment.

Periodic Inventory Is Still Necessary

Even with perpetual inventory, you’re still going to need to undertake some kind of manual stocktaking process to ensure your records are up-to-date and your inventory system is operating correctly.

Should you Choose Periodic or Perpetual Inventory for Your Business?

Let’s make this as simple as possible:

In the choice between periodic vs perpetual inventory, periodic is better if you’re just starting out, sell very few products, or have a small budget.

Perpetual is better for everyone else.

And, if your small business starts to grow, you’re going to want to switch over to a perpetual inventory management system.

Periodic inventory is fine in the beginning, but the insights, increased accuracy, and informed decision-making power that comes from perpetual inventory will help you optimize every process in your business – something periodic inventory will never be able to do.

If you’re currently using a periodic inventory management system and are ready to experience the benefits of perpetual inventory, then we can help.

Experience the Power of a Perpetual Inventory Management System Today

Our cloud-based inventory management software will give you instant visibility into stock levels, allow you to manage large product volumes, and streamline your stocktake. It will even automate your processes, generate detailed reports, and make it easy to operate multiple locations.

Start your free 14-day trial of DEAR Inventory today!

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How Consignment Inventory Works and How to Make It Work for You

Posted on July 15, 2017 by dearsyst

Do you ever wish you could try out a new product in your retail store and not have to buy it unless you sell it?

Or, wouldn’t it be nice to easily get your new product onto a retailer’s shelves without much hassle or haggling?

There is a unique business model that makes these 2 scenarios possible…

It’s called consignment inventory, and it’s an underutilized way to create a win-win partnership between suppliers and retailers as long as they’re both willing to share the risks – and rewards.

To help you learn how to make consignment inventory work for you, we’ll go over what it is, what are its pros and cons, and how to implement it wisely.

What is Consignment Inventory?

Consignment inventory is a business arrangement where the consignor (a vendor or wholesaler) agrees to give their goods to a consignee (usually a retailer) without the consignee paying for the goods up front – the consignor still owns the goods, and the consignee pays for the goods only when they actually sell.

For example, a women’s watch vendor might want to break into a new market, but they’re relatively unknown and have had a hard time selling their goods to retailers.

If the vendor offers their watches on consignment, the retailer agrees to stock the watches in their store and only pay for the ones they sell.

This arrangement can be hugely beneficial for both parties, but it also carries with it some major risks.

To get a balanced view of consignment inventory, let’s look at some of its pros and cons for both vendors and retailers.

Pros and Cons of Consignment Inventory for Vendors

Pros for Vendors

1. New Markets

As we pointed out in our women’s watch example, selling on consignment allows vendors to enter new markets at minimal cost to the retailers, which makes retailers more likely to carry the vendors’ inventory.

2. Low Inventory Carrying Costs

Inventory is expensive to warehouse. By giving a portion of it to a retailer, vendors lower the cost of carrying inventory.

3. Direct-to-Retailer Shipping

Instead of having inventory shipped to a warehouse and then to a retailer, vendors can have their manufacturers deliver the inventory directly to the retailer.

This streamlines the supply chain, saves labor costs, and gets goods on retailers shelves faster.

Cons for Vendors

1. Increased Cost for Unsold Inventory

Since the inventory is still owned by the vendor, they still have to count it as part of their assessment of their costs.

The vendor may profit less the longer the inventory is held without being used or sold.

2. Uncertain Cashflow

Vendors won’t receive payment until after some or all of the goods are sold by the retailer. Goods that aren’t sold are usually returned to the vendor.

This makes cashflow uncertain and volatile since they don’t know when or how much of the goods will be sold.

Pros and Cons of Consignment Inventory for Retailers

Pros for Retailers

1. Lower Cost of Ownership

Retailers are able to draw upon consignment inventory to use it without owning it, which lowers their total cost of ownership and holding costs.

2. Minimal Risk

Retailers don’t have to pay for the inventory upfront, which allows them to use their capital to purchase and sell more established products while taking on minimal risk when carrying a new supplier’s brand.

3. Improved Cashflow

The retailer pays nothing to hold the goods and only pay their vendor once they sell the products. The retailer doesn’t have to worry about excess holding costs since the vendor still owns the stock until it’s sold.

This means the retailer can hold more consignment inventory at lower cost and not have to worry about stockouts or buying goods that won’t sell in their store.

Cons for Retailers

1. Increased Risk of Damaging Inventory

The longer the retailer holds the inventory, the higher the chances of it getting damaged during normal business operations (which usually means they’re obligated to buy it).

2. Increased Chance of Stock Count Errors

Consignment inventory should be “invisible” to most employees. Meaning, it should be handled like all the other inventory.

If it has to be managed separately from the other types of inventory and the retailer isn’t using an inventory management system designed for consignment inventory, they may experience costly inventory errors such as double counting and shipping delays.

How do you Make Selling on Consignment Profitable for Both Parties?

Cultivate Mutually Beneficial Relationships

Vendors and retailers can reap the biggest rewards from consignment inventory if they develop an honest partnership and work together to improve their processes and strengthen their supply chain management.

Vendors should assist retailers in any capacity possible, and retailers should work to sell their consignment inventory as efficiently as possible.

Create a Mutually Beneficial Contract

Carefully outline the responsibilities and expectations of each party, the length of time the retailer will hold the inventory, the prices of the goods being sold, who is liable in the event of damage on the retailer’s property, etc.

The more detailed and thorough your contract is the more transparent your business partnership will be, which will help mitigate possible disputes and disagreements in the future.

Use an Inventory Management Software Designed for Consignment Inventory

Not any inventory management system will work with consignment inventory.

An Excel or paper-based inventory management system will make collaboration between vendor and retailer slow and difficult.

Most inventory management software only handles on-site inventory and doesn’t account for consignment arrangements.

And a lot of businesses don’t work on consignment very often, which makes the process confusing, dissuading businesses from trying it out.

An optimal solution to these problems would be making an investment in an inventory management software that is designed to handle consignment inventory.

Ideally, the software should:

– Track the inventory sent to the consignee

– Track what inventory needs to be replenished at the consignee’s site

– Track what inventory needs to be ordered to replenish the consignor’s stock

– And make consignment inventory management as easy as possible

Fortunately, there’s a solution that can do all of this for you…

Start your free 14-day trial today

Rate of Inventory Turnover: What It Is, What it Means, and How to Improve It

Posted on July 1, 2017 by

Calculate your rate of inventory turnover to maximize cash flow

Your rate of inventory turnover is a key metric to understand if you want to optimize your cash flow, working capital, and inventory costs.

By calculating your rate of inventory turnover, you’ll have a better grasp on the market demand for your products, on the amount of obsolete stock you may be carrying, and what steps you need to take to sell or stock more inventory, depending on your turnover rate.

In this article, we’ll explore what inventory turnover is and how to calculate it before discussing a few ways to improve it. By the end, you’ll know what your rate of inventory turnover means and how to use that knowledge to increase the efficiency and profitability of your business.

What is the Rate of Inventory Turnover?

The rate of inventory turnover is a measurement of the number of times your inventory is sold or used in a given time period, usually per year.

It signals to your company’s managers and executives – along with your company’s investors – how well you’ve been converting your inventory into sales. It can also tell you how well your inventory is being managed, and whether or not it’s being mismanaged.

Here’s how to calculate your inventory turnover rate:

How do You Calculate the Rate of Inventory Turnover?

There are usually 2 ways you can calculate the rate of your inventory turnover:

Sales divided by Inventory
Cost of Goods Sold (COGS) divided by Average Inventory

Most analysts don’t use the first method of calculation because it can yield inaccurate results. Sales include a markup over costs, which could inflate your inventory turnover rate.

COGS divided by average inventory can give you a more accurate rate of inventory turnover. To calculate your inventory rate, you first need to calculate your average inventory.

Calculating Average Inventory

If you want to calculate your average inventory for a single fiscal year (12 months), you’ll first want to find the inventory counts from the end of each month (in dollar value) and add them all together.

Then, divide your total amount of inventory by the number of months you’re calculating (12 in this example) to get your average inventory for that period.

For example, let’s assume that the past 12 months you had varying inventory costs that added up to $168,000.

Divide $168,000 by 12 months and you get an average inventory of $14,000.

Calculating Rate of Inventory Turnover

Calculating your Cost of Goods Sold is a bit complicated and depends greatly on your products and business. Check out this post to learn more about the general methods for going about this.

For our example, let’s assume your COGS for the past 12 months is $130,000.

To calculate your inventory turnover rate, divide your COGS by your average inventory, which in this case gets us a rate of 9.29. That means 9.29 times out of the year, your inventory completely turned over.

What’s a Good Rate of Inventory Turnover?

Once you know your rate of inventory turnover, you can assess how to improve it.

To know whether your inventory turnover rate is high or low, you’ll want to compare it to your industry’s average.

Here are a few industry averages that might apply to you, as found on market research and analysis website CSIMarket:

Internet, Mail Order, & Online Shops: 9.54
Wholesale: 9.39
Food Processing: 8.23
Miscellaneous Manufacturing: 5.07

For the rest of this post, we’re going to assume you’re struggling with low inventory turnover since high inventory turnover typically just means you need more stock to cover consumer demand. Low inventory turnover, however, can lead to a host of problems.

What’s the Problem with a Low Rate of Inventory Turnover?

A low rate of inventory turnover could mean a lot of bad things for your business:

You’re spending too much on holding costs like rent, insurance, etc.
Goods that aren’t turning over are becoming obsolete in the market
You’re ordering too much stock, too frequently
You may have cash flow problems because you’re tying up too much capital in inventory

In order to prevent these problems from occurring, here are several ways you can raise your turnover rate.

5 Ways to Increase Your Rate of Inventory Turnover

There are many strategies you can use to sell and manage your inventory effectively.

Not all strategies will be applicable or work for you, but try a few and use those that work best for you.

Change your Pricing and Marketing Campaigns

The first thing to try is finding a way to sell more products – since this will not only improve your rate of turnover but also generate cash.

Brainstorm a few new marketing campaigns to find creative and clever ways to engage your target market and differentiate yourself from your competitors.

You might try playing around with your pricing strategies. Don’t just lower your prices – this can obviously cost you quite a bit.

Instead, test various tactics like:

Seasonal sales
Rush delivery service
Flash sales
Different pricing for different customers
Product bundles
Bonuses
Pricing structure ($47 vs. $50, or $49.50 vs. $49.99)

Keep testing until you find something that works, and then replicating and expand on the winning strategies.

Liquidate Obsolete Stock

If you suffer from a low rate of inventory turnover, you may have obsolete stock sitting in your warehouse. This could be due to a couple reasons, such as:

Ineffective forecasting of customer demand
Too much excess stock ordered

Either way, you need to focus on reducing your inventory as quickly as possible, and developing stronger inventory tracking systems so you know in real-time what is selling and what isn’t.

Forecast Customer Demand Better

Analyze every product’s past performance and level of demand in order to predict future sales trends. Pay attention to market changes, product innovations, and new competitors to stay on top of your market.

Redistribute Your Inventory

If you have multiple warehouses, then consider redistributing your excess inventory to a location with greater demand for those items.

This can reduce the need to order inventory in some locations while lowering your stock levels in those that consistently carry too much.

Track Your Inventory to Stay in Control

Through better tracking, you’ll able to know exactly how much inventory you have in real-time, what customer demand has been in the past, and eliminate inaccuracies in your stock count.

And if you’re tracking inventory in multiple locations with multiple warehouses, you need a system that can pull all that data together under one central dashboard so you can generate up-to-the-minute reports on the state of your business.

Tracking your inventory helps you use the other 4 strategies listed here more effectively, and allows you to accurately calculate your rate of inventory turnover.

Ready to Increase Your Inventory Turnover Rate?

Cloud-based inventory management software can automate your sales tracking, let you monitor every item as it moves through your business with RFID barcode technology, and integrate your inventory data into the rest of your business systems such as your ecommerce store or accounting software.

Get started with your free 14-day trial of DEAR Inventory today!

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What is Working Capital and Why Does it Matter?

Posted on June 17, 2017 by Alla

Find the right level of working capital to grow a healthy business

Working Capital is an important financial metric for understanding your company’s operating liquidity (the ability to convert your assets into cash for the purpose of paying the bills). Knowing your amount of working capital can also guide your inventory strategies, leading to smarter buying decisions.

By the book, the definition of working capital is:

Working Capital = Current Assets – Current Liabilities

In other words, it’s the cash you have left over once all payments due to you are collected and your bills are paid.

If your company maintains an inventory of goods that you sell to your customers, the formula can be expanded to:

Inventory Value (value of items for sale and items used to make goods for sale)

+ Receivables from Customers (cash owed to company for sales)

+ Rebates from Suppliers (Discounts for buying a certain value, quantity, or within a certain timeframe)

– Payables to Suppliers (cost of inventory)

= Working Capital.

What’s considered a healthy working capital varies from industry to industry – but in theory it should be as low as possible.

A low working capital is a strong indicator that your company is finding the right balance between what you have on your shelves, the revenue you are generating, the investments you are making in your future, and the debts you owe.

A high working capital can be a sign your business is booming, but it can also mean you’re missing investment and growth opportunities.

Another Insightful Approach

In the business world, working capital is usually measured not by the cash figure of assets minus liabilaties, but by what’s known as your current ratio, which is:

Current Ratio = Current Assets / Current Liabilities

According to Investopedia, your business should aim for a current ratio between 2.0 to 1.2, but this varies by industry; here are some average current ratios for industries you’re likely in, according to CSIMarket:

Internet, Mail Order, & Online Shops: 1.12
Wholesale: 1.29
Food Processing: 1.26
Miscellaneous Manufacturing: 1.55

A ratio higher than 2 is a sign that you’re not properly using your funds – either in the form of carrying too much inventory or not capitalizing on extra cash by investing in growing your business, while a ratio lower than 2 may make it difficult to find the cash you’ll need to pay your suppliers and other debts.

The metric changes as quickly as you make sales, pay suppliers, or increase your inventory – but by understanding how the decisions you make affect it, you can take control of your working capital instead of letting it control you.

Here are some aspects of your operations to consider as you create your working capital management strategy:

Turn Down Supplier Discounts

Just say no (sometimes)! Avoid the temptation to take advantage of supplier discounts when they mean ordering more inventory than you need right now.

Sure, you could buy three times the materials to reduce your per item cost by 75{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3}. But unless you can actually sell that inventory, you risk filling your shelves with stuff that can quickly become obsolete, broken, or buried.

By collecting data to understand your what your customers want and when, you can better decide when it’s the right time to take advantage of these discounts.

Achieve Negative Working Capital

There are two ways to look at negative working capital – one way is a signal of financial distress for a company indicating you have spent more money than you have.

A more positive definition involves a strategy that requires careful thought and planning.

By setting terms of payment with your suppliers that give you enough time to collect from your customers before you pay for the raw materials of the items you sold – you are in essence borrowing cash from your suppliers to free up more money for your day to day operations.

This strategy requires an in-depth understanding of your customer demand cycles to ensure its possible to sell all your inventory and collect from your customers prior to your invoice due dates.

Negotiate your payment terms with your own billing cycle in mind. Be sure to give yourself an overlap period where you have cash payments in the bank, but no invoices due for the products and materials you just sold.

For example, let’s say you made $100 in sales for product X and have collected all payments due from your customers.

You owe your suppliers $50 for the raw goods you used to make product X, but the invoice isn’t due for another two weeks.

Because working capital only factors in supplier payments that are currently due, your working capital is a $100 ahead instead of only $50 – which is what it would be if you had to pay your supplier at the same time you collected payment.

Maintaining a negative working capital balance frees up cash to take advantage of opportunities to spend money on growing your business and reducing debts.

Control Inventory Levels

Inventory reduction plays a major role in achieving an ideal working capital – the less inventory on hand, the less you owe to suppliers, tipping your working capital in your favor.

Take control of your inventory levels by putting your sales and purchasing history data to work helping you predict the optimal levels of inventory necessary to operate.

The goal is to use that data to find the right balance between demand, production, and ordering raw materials or stock.

Order too much and you’ve tied up cash resources in product or materials that aren’t making you money. Purchase too little and now you run the risk of losing sales to your competitors who do have the product available for sale.

If this all seems like an elaborate guessing game, you’re not alone. Learn more about inventory reduction in our earlier post. From “lead times” to “just-in-time,” it covers the basics you need to know to get started.

Find the Balance, Achieve Results

Businesses of any size can find a healthy balance of inventory, taking advantage of supplier discounts, and payment cycles by leveraging inventory management software thanks to cloud-based tools like DEAR Inventory.

Want Better Data to Make Better Decisions?

Experience the tracking and reporting power of modern cloud-based inventory management software by starting your free 14-day trial of DEAR Inventory today!

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10 Fundamental Steps of Every Successful Stocktaking Process

Posted on June 3, 2017 by dearsyst

Performing a complete stocktake once or twice a year is absolutely essential for maintaining healthy inventory levels and minimizing losses in retail and wholesale businesses (not to mention keeping the accountants happy).

But they can definitely be time-consuming, energy-draining, and frustrating.

And without a clear plan for success, you face the risk of serious human errors – like overcounting or undercounting – that could cost you thousands of dollars and lost customers.

So, how do you stay organized and get things done quickly?

By developing a well-structured stocktaking process that employees and managers can follow together, thereby limiting the possibility of your staff making costly mistakes.

A well-structured stocktaking process will include all the steps required to keep your staff working efficiently to uncover discrepancies and inaccuracies while keeping them engaged and focused.

Here’s our list of 10 fundamental steps that you should include in your stocktaking process for maximum effectiveness.

1. Schedule Your Stocktakes to Reduce Impact on Business Operations

Try to find a time that works for you and your staff that won’t hurt your bottom line or create unnecessary distractions. A lengthy stocktake is best taken during a slow sales cycle or outside of normal business operations.

2. Clean and Organize Your Stockroom Before Performing Your Stocktake

A clean and well-organized stockroom will make it easy to find and count your stock to reduce the possibility of miscounting.

Another measure you could take to make the stocktaking process more efficient would be to create well-defined sections by labeling the shelves that stock is and should be stored on, along with using package labels that clearly identify what’s inside the package.

3. Organize Your Stocktaking Tools Ahead of Time

Before you begin the stocktaking process, you’ll want to make sure everyone has the tools they need to get the job done.

Here’s a list of the most common tools used for stocktaking:

– Clipboards

– Stock sheets

– Write-off sheets

– Pens

– Calculators

– Handheld scanners

– Mobile Devices (if you use cloud-based inventory management)

You might need more or fewer tools than the ones listed, but this should give you a general idea of what’s generally required for an effective stocktaking process.

4. Only Use Up-To-Date Inventory Data

The goal of a complete stocktake is to get an accurate count of the inventory you actually have so that you can compare it with your existing inventory data.

So be sure to exclude items that have already been invoiced to customers but haven’t yet shipped, as well as raw materials that have arrived but haven’t yet been entered into your inventory system.

Stock that hasn’t shipped is essentially not yours anymore. Processing materials that haven’t been added into your inventory management system is a separate task that doesn’t need to be done during a stocktake.

5. Give Everyone Clear Goals and Responsibilities

A supervisor should be overseeing the stocktaking process at all times. They should have a list of what needs to be counted and what ought to be in their warehouse so they can double check the work of the stocktakers.

The stocktakers should know what groups they’re in, what tools they need, how they’re going to count the stock, etc.

Also, supervisors should make sure that there are practically zero distractions – that stocktakers aren’t distracting themselves with their phones or with too much conversation.

At the same time, if your stocktake is going to last a long time, it may be wise to schedule breaks to keep everyone’s minds and eyes fresh so that they don’t make too many mistakes.

6. Know What Stock You’re Counting and How You’re Counting it

Whether you have a massive warehouse filled with various types of inventory or a small stockroom with just a few types, let stocktakers know which sections they’ll be counting in what order.

Then, create a clear system for how they should physically count your stock.

Here’s an idea for how to organize the actual counting part of the process:

– Each unit of stocktakers should be in groups of two—one person inspects the stock and calls out the amount, the second person records this and can double check the first.

– If you have multiple units of stocktakers, make sure they all have clear sections to work through that don’t overlap.

– Have your stocktakers to count in the same direction – i.e. top to bottom, left to right.

– Mark stock with a colored marker or pen as a visual reminder of what’s already been counted.

With a similar process, your counting should be well-organized and operate smoothly.

7. Open and Count Absolutely Everything—No Guesswork Allowed

If you have a box that says it contains 10 widgets, don’t just take that label on face value. Open the box and count all of its contents to ensure it does contain that exact amount.

Your stocktaking process should aim to deliver as close to 100{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3} accurate readings as possible, which means you shouldn’t estimate or guess on any number.

And be sure to record any discrepancies between the counts listed on your stock sheet and the number of items you counted, as well as any mislabeled/packaged boxes for quality control.

8. Value Your Stock Correctly

Once you’ve counted all your stock, make sure you have the most up-to-date prices for all of it.

The price of your stock should match the market clearing price or the price that consumers are willing to pay for that item.

And be sure to include any depreciation as well.

If you purchased a certain raw material last year for $1,000 but now it is only valued at $750 then you need to change prices to reflect the lower price – the same goes for older products you’re now selling at a discount.

9. Develop Ways to Decrease Stolen, Broken or Slow-Selling Inventory

During your stocktaking process, you may find that items you thought were in your warehouse were actually missing, and that some items that have been damaged or spoiled were never reported.

You might also notice that some items are simply not selling.

With this data in hand, you can begin brainstorming ways to increase security measures to protect against thieves, improve warehouse policies to curb reckless behavior and implement new strategies for selling more stock.

One sure-fire way to help in all these areas is through inventory reduction – creating a plan for optimizing the amount of inventory stored in your warehouse.

10. Continually Improve Your Stocktaking Process

Your stocktaking process shouldn’t be a static set of procedures; it should grow and evolve every time you do it so it becomes more efficient over time.

Encourage your stocktakers and supervisors to suggest improvements, develop new procedures for a more effective workflow, and brainstorm ways to decrease your stock to manageable levels that reduce waste.

But if you really want to improve your process, then consider investing in new technology that can streamline your stocktake and make it easy to track your inventory throughout the year.

Start your free 14-day trial today

New Release 12/06/2013 – Product discounts, Customer group discounts, Customer-Product pricing matrix, Bulk updates and Customer tags

Posted on June 13, 2013 by dearsyst

New “price discount” feature allows users to seamlessly create and apply discounting to a range of products, customers and customer groups. Users have the ability to discount and mark up prices by amount, percentages, price override and flat amount (for services).

The sequence of discounts that can be applied is:

1. Individual customer level. This overrides all other discounts.
2. Customer group level. If no discount applied at individual level, customer group discount will be applied.
3. Product level. If no discounts at individual customer and customer group levels, product level discount will be applied.

Users have the ability to apply the discount to certain product categories by exporting the product list in bulk (Excel) and changing values in the discount name column and then importing the product list back into DEAR.

New Release 30/05/2013 – Serial Numbers, Barcodes, Batches, Recurring Invoices‏

Posted on May 31, 2013 by dearsyst

We are excited to let you know about our most recent release. After collecting some excellent feedback from our customers we have added a number of features which add even further value to our great product. Some of the new features in our most recent release are below.

Serial Numbers

Collect serial numbers of inventory to search and track availability of individual stock items rather than just the overall quantity.

Barcodes

Use the barcode to search and track availability of inventory in the database.

Batches

Track batches, or groups, of a specific item. Similar to serialised inventory, except a batch represents a group of items instead of an individual unit. A batch number is assigned to each batch of items, and the number stays with the batch as it goes through the system. You can track when each batch was received, shipped, built, and so on.

Improved Dashboard

DEAR dashboard has been improved to display a snapshot of your organisation’s financial position based on transactions entered into DEAR Inventory. The usability of Dashboard has been expanded and now allows you to directly drill down into transactions, or quickly perform common tasks such as initiate stock reorder or adding sales invoices or bills.

Recurring Invoices

The recurring invoicing function of DEAR Inventory allows you to invoice customers on a regular basis. Billing cycles can be scheduled for any number of monthly increments and set to bill on a preferred processing day.