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Cycle Counting: What It Is, Why You Should Use It, and How to Do It Right

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Following Cycle Counting Best Practices can save you tons of time in stocktaking

Following Cycle Counting Best Practices can save you tons of time in stocktaking

Knowing what inventory you have is a fundamental step toward forecasting how much inventory you’ll need.

But traditional stocktaking processes like a full physical inventory are often time-consuming, profit-shrinking, and headache-inducing.

Yet most small businesses only use a full physical inventory to take stock.

Well, you no longer have to suffer through a full physical inventory like most small businesses.

What’s the alternative to a physical inventory?

Cycle counting.

In this post, we’ll show you what cycle counting is, its benefits, and how it works. We’ll also show you some cycle counting best practices.

By the end of this post, you’ll know how to avoid the pain of a full inventory by performing a cycle count of your inventory instead.

What is Cycle Counting?

Cycle counting is an alternative stocktaking process that involves regularly counting a small portion of your inventory over time instead of counting your entire inventory in one sitting.

While most businesses have to shut down or work overtime to perform a full physical inventory, cycle counting allows businesses to update their inventory records without shutting down during business hours or working after closing time.

The cycle counting process is simple:

  • Choose when you will perform the cycle count
  • Choose which items in what order get counted
  • Choose how often you perform your cycle count
  • Start cycle counting

Benefits of Cycle Counting

While cycle counting can be difficult to implement at first, you’ll receive significant benefits after your cycle counting system is running smoothly.

Here are just a few benefits of cycle counting:

  • Less disruptive to business operations
  • Saves more money through reduced downtime and labor
  • Improves accuracy of stocktake because employees are less likely to make mistakes when counting a smaller volume of inventory
  • Gives you the ability to find and fix errors before they get out of control
  • Gives you a “real-time” sense of your inventory levels, leading to less over-ordering or under-ordering
  • Lets you spend less time counting inventory and more time growing your business

Cycle Counting Methods

Cycle counting is not a method in and of itself. It’s a process, and there are multiple methods for applying this process.

Below are 2 of the most popular ways for implementing cycle counting.

Control Group Cycle Counting

Control group cycle counting is especially helpful for businesses using cycle counting for the first time because it allows you to test the process and uncover errors in your method before implementing it across your entire inventory.

With this method, you will choose a small group of items that will be counted many times over a short period.

Once you’re able to perform the cycle count without any errors, and you feel confident in your process, you can now apply it to the rest of your inventory.

ABC Inventory Cycle Counting

ABC analysis of inventory is a method of sorting your inventory into 3 categories according to how well they sell and how much they cost to hold:

  • A-Items – Best-selling items that don’t take up all your warehouse space or cost
  • B-Items – Mid-range items that sell regularly but may cost more than A-items to hold
  • C-Items – The rest of your inventory that makes up the bulk of your inventory costs while contributing the least to your bottom line

ABC Inventory cycle counting uses the ABC categories to guide the cycle count process.

  • A-Items – Counted most frequently (multiple times throughout the year)
  • B-Items – Counted somewhat frequently (a few times throughout the year)
  • C-Items – Counted infrequently (once or twice throughout the year)

3 Cycle Counting Best Practices

Now that you know what cycle counting is and how it works, let’s go over some cycle counting best practices to make it easier to use in your business.

Develop a Plan for Routine Cycle Counting

Before jumping into a cycle counting routine, you should detail exactly what you’ll be counting, when you’ll be counting it, how you’ll record your counts, etc.

You could make cycle counting a part of your daily routine, or choose one day every week to do it. Whatever your plan is, write it down and stick to it.

Create a Cycle Counting Team

You have to be on the frontlines implementing cycle counting…but you don’t have to do the cycle counting yourself.

Instead, you should assemble a team to perform the actual counting. Your team can consist of one other person or a group of employees.

Regardless, make sure they understand their job responsibilities, the layout of your warehouse, and how to use the tools for counting your inventory.

Test Your Cycle Counting Methods Until You Find the Right One

The goal of cycle counting is to accurately assess your inventory levels without spending too much time counting.

To achieve this goal, you’ll need to experiment with which items get counted when, how often you count, etc.

Your first goal should be to count your entire inventory four times a year. After you hit that goal, you’ll know if you need to count it more or less, depending on your rate of inventory turnover.

Want to Know What’s Even Better Than Cycle Counting?

Small businesses use cycle counting because they can’t afford to shut down for an entire day.

Plus, shutting down your business just to count your stock is a massive headache.

So what if there was a way to know how much inventory you have WITHOUT performing a cycle count or shutting down for a full stocktake?

Well, there is.

It’s called DEAR Inventory. And you can find out how it works below.

DEAR Inventory Makes Cycle Counting Obsolete

Stop Manually Stocktaking for Good with DEAR Inventory

Stop Manually Stocktaking for Good with DEAR Inventory

DEAR automatically tracks your transactions across online and offline sales while tracking your purchase orders and shipments. It also tracks your inventory in real-time. Plus, by scanning a barcode with DEAR, it will tell you exactly how much you stock you have of that item. Forget the hassle of performing stocktakes manually. Get DEAR Inventory instead.

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

Try DEAR for Free

No Credit Card Required

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15 Inventory Management Techniques You Need to Use Today

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Ever heard of a successful business that became successful while mismanaging its inventory?

We haven’t either. They don’t exist.

Sure, there are plenty of mammoth companies that mismanaged their inventories and lost billions after becoming successful. Walmart losing $3 billion because of out of stocks is a prime example of inventory mismanagement.

But if they want to continue being successful, they’d have to implement better inventory management techniques.

The same is true for you.

If you want to remain profitable and competitive (or get to this point in your business), then you need to know and use as many cost-saving and profit-boosting inventory management techniques and tools as possible.

You can’t afford not to.

To help you out, we’ve listed a variety of different techniques of inventory management. By the end of this post, you’ll be able to use at least a few of them to improve your business operations.

But before we get to the inventory management techniques, let’s quickly define inventory management itself.

 

What is Inventory Management?

Inventory management is a collection of tools, techniques, and strategies for storing, tracking, delivering, and ordering inventory or stock.

A large amount of capital, if not the majority of a company’s capital is wrapped up in their inventory.

For that reason, it’s incredibly important to control the coming and going of inventory as best you can to minimize losses and maximize profits – which is where inventory management techniques come into play.

 

Inventory Management Techniques

Below is a list of some of the most popular and effective inventory management techniques you can use to improve your business.

Economic Order Quantity

Economic order quantity is the lowest amount of inventory you must order to meet peak customer demand without going out of stock and without producing obsolete inventory.

Its purpose is to reduce inventory as much as possible to keep the cost of inventory as low as possible.

To help you calculate EOQ, here is the formula from Kenneth Boyd, author of Cost Accounting for Dummies:

Economic order quantity uses three variables: demand, relevant ordering cost, and relevant carrying cost. Use them to set up an EOQ formula:

– Demand: The demand, in units, for the product for a specific time period.

– Relevant ordering cost: Ordering cost per purchase order.

– Relevant carrying cost: Carrying costs for one unit. Assume the unit is in stock for the time period used for demand.

Note that the ordering cost is calculated per order. The carrying costs are calculated per unit. Here’s the formula for economic order quantity:

Economic order quantity = square root of [(2 x demand x ordering costs) ÷ carrying costs]

That’s easier to visualize as a regular formula:

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Q is the economic order quantity (units). D is demand (units, often annual), S is ordering cost (per purchase order), and H is carrying cost per unit.

 

Minimum Order Quantity

Minimum order quantity (MOQ) is the lowest set amount of stock that a supplier is willing to sell. If you can’t purchase the MOQ of a specific product, then the supplier won’t sell it to you.

The purpose of minimum order quantities is to allow suppliers to increase their profits while getting rid of more inventory more quickly and weeding out the “bargain shoppers” simultaneously.

A minimum order quantity is set based on your total cost of inventory and any other expenses you have to pay before reaping any profit – which means MOQs help wholesalers stay profitable and maintain a healthy cash flow.

 

ABC Analysis

ABC analysis of inventory is a method of sorting your inventory into 3 categories according to how well they sell and how much they cost to hold:

– A-Items – Best-selling items that don’t take up all your warehouse space or cost

– B-Items – Mid-range items that sell regularly but may cost more than A-items to hold

– C-Items – The rest of your inventory that makes up the bulk of your inventory costs while contributing the least to your bottom line

ABC analysis of inventory helps you keep working capital costs low because it identifies which items you should reorder more frequently and which items don’t need to be stocked often – reducing obsolete inventory and optimizing the rate of inventory turnover.

 

Just In Time Inventory Management

Just-in-Time Inventory Management is simply making what is needed, when it’s needed, in the amount needed.

Many companies operate on a “just-in-case” basis – holding a small amount of stock in case of an unexpected peak in demand.

JIT attempts to establish a “zero inventory” system by manufacturing goods to order; it operates on a “pull” system whereby an order comes through and initiates a cascade response throughout the entire supply chain – signaling to the staff they need to order inventory or begin producing the required item.

Here are some of the benefits of just-in-time inventory:

– Minimize costs such as rent and insurance by reducing your inventory

– Less obsolete, outdated, and spoiled inventory

– Reduce waste and increase efficiency by minimizing or eliminating warehousing and stockpiling, while maximizing inventory turnover

– Maintain healthy cashflow by ordering stock only when necessary

– Production errors can be identified and fixed faster since production happens on a smaller, more focused level, allowing easier adjustments or maintenance on capital equipment

 

Safety Stock Inventory

Safety stock inventory is a small, surplus amount of inventory you keep on hand to guard against variability in market demand and lead times.

Safety stock plays an integral role in the smooth operations of your supply chain in various ways.

Here are just a few:

– Protection against unexpected spikes in demand

– Prevention of stockouts

– Compensation for inaccurate market forecasts

– And a buffer for longer-than-expected lead times

You probably noticed that the benefits of safety stock are all tied to mitigating problems that could seriously harm your business.

That’s because without safety stock inventory you could experience:

– Loss of revenue

– Lost customers

– And a loss in market share

A safety stock formula is relatively straightforward and requires only a few inputs for calculation.

Here’s the formula we recommend using if you’re just starting out:

(Max Daily Sales x Max Lead Time in Days) – (Average Daily Sales x Average Lead Time in Days) = Safety Stock Inventory

 

FIFO and LIFO

FIFO and LIFO are accounting methods used to value your inventory and report your profitability.

FIFO (first in, first out) is an inventory accounting method that says the first items in your inventory are the first ones that leave – meaning you get rid of your oldest inventory first.

LIFO (last in, first out) is an inventory accounting method that says the last items in your inventory are the first ones that leave – meaning you get rid of the newest inventory first.

If you handle food inventory management or operate any business with perishable items, then you pretty much have to use FIFO. Otherwise, you’ll end up with obsolete inventory that you’ll have to write-off as a loss.

With that said, LIFO is a great method for non-perishable homogeneous goods like stone or brick. So, if you get a fresh batch of items like these, you don’t need to rearrange your warehouse or rotate batches since they’ll be the first ones out anyway.

 

Reorder Point Formula

A reorder point formula tells you approximately when you should order more stock – that is, when you’ve reached the lowest amount of inventory you can sustain before you need more.

Here’s the reorder point formula you can use today:

(Average Daily Unit Sales x Average Lead Time in Days) + Safety Stock = Reorder Point

This equation can help you stop being a victim to market spikes and slumps and instead, consistently order the right amount of stock each month.

 

Batch Tracking

Batch tracking is sometimes referred to as lot tracking, and it’s a process for efficiently tracing goods along the distribution chain using batch numbers.

From raw materials to finished goods, batch tracking allows you to see where your goods came from, where they went, how much was shipped, and when they expire if they have an expiration date.

What are the benefits of batch tracking?

– Easy and Fast Recall

Streamlined Expiry Tracking

– Improved Relationships with Suppliers

– Fewer Accounting Errors from Manual Tracking

 

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.

This inventory management technique creates a win-win partnership between suppliers and retailers as long as they’re both willing to share the risks – and rewards.

Pros for Vendors:

– New Markets

– Low Inventory Carrying Costs

– Direct-to-Retailer Shipping

Pros for Retailers:

– Lower Cost of Ownership

– Minimal Risk

– Improved Cashflow

 

Perpetual Inventory Management

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.

These are the advantages of perpetual inventory:

– Proactive monitoring of inventory turnover

– Manage multiple locations with ease

– More informed forecasting

 

Dropshipping

Dropshipping is a business model that allows you to sell and ship products you don’t own and don’t stock.

Your suppliers – wholesalers or manufacturers – produce the goods, warehouse them, and ship them to your customers for you.

The process is simple:

– You receive an order

– You forward the order to your supplier

– Your supplier fulfills the order

Here are the benefits of dropshipping:

– Low startup costs

– Low cost of inventory

– Low order fulfillment costs

– Sell and test more products with less risk

 

Lean Manufacturing System

The Lean Manufacturing System, often referred to as lean manufacturing, lean production, or simply “Lean” is a system for maximizing product value for the customer while minimizing waste without sacrificing productivity.

This system originated in the Toyota Production System (TPS). There were 3 things TPS attempted to prevent:

– Muda –  Everything in your manufacturing process that creates waste or causes constraints on creating a valuable product.

– Mura – Everything that creates inconsistent and inefficient work flows.

– Muri – All tasks or loads that put too much stress on your employees or machines.

There were also 5 principles that every Lean manufacturing system adhered to:

1. Value – A company delivers the most valuable product to the customer.

2. Value Stream – Map out the steps and processes required to manufacture those valuable products.

3. Flow – Undergo the process of ensuring all of your value-adding steps flow smoothly without interruptions, delays, or bottlenecks.

4. Pull – Products are built on a “just-in-time” basis so that materials aren’t stockpiled and customers receive their orders within weeks, instead of months.

5. Perfection – Make Lean thinking and process improvement a core part of your company culture.

By minimizing or eliminating Muda, Mura, and Muri while adhering to the 5 principles, the proponents of Lean Manufacturing believe this inventory management technique can produce the highest-quality products while increasing your revenue and productivity.

 

6 Sigma

6 sigma, or Six Sigma is a data-driven process that seeks to reduce product defects down to 3.4 defective parts per million, or 99.99966{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3} defect-free products over the long-term.

In other words, the goal is to produce nearly perfect products for your customers.

By using statistical models, 6 Sigma practitioners will methodically improve and enhance a company’s manufacturing process until they reach the level of 6 Sigma.

The first and most-used method in Six Sigma is a 5-step process called DMAIC:

– Define

– Measure

– Analyze

– Improve

 – Control

The DMAIC process uses data and measured objectives to create a cycle of continuous improvement in your manufacturing methods.

While DMAIC is useful for improving your current processes, DMADV is used to develop a new process, product, or service.

DMADV stands for:

– Define

Measure

– Analyze

– Design

– Verify

The DMADV process uses data and thorough analyses to help you create an efficient process or develop a high-quality product or service.

Through intensive training, focused projects, and effective statistical analyses, 6 Sigma could save your business a lot of money.

Fortune 500 companies have saved an estimated $427 billion after implementing the 6 Sigma methodology, according to iSixSigma magazine.

 

Lean Six Sigma

Lean Six Sigma is the fusion of Lean Manufacturing with Six Sigma to create a complete system that removes waste and reduces process variation for streamlined manufacturing and optimal product output.

Lean Six Sigma primarily uses Six Sigma processes and methods as the backbone of the system – such as DMAIC and the belt system – to drive focused improvements in manufacturing while incorporating many techniques and tools from Lean to reduce wasteful steps and processes

 

Demand Forecasting

Demand forecasting is a process of predicting what your customers will buy, how much they’ll buy, and when they’ll buy it.

You can use informal methods such as guessing, or quantitative methods such as analyzing past sales data.

From production planning to inventory management to entering a new market, demand forecasting will help you make better decisions for managing and growing your business.

Here are some demand forecasting best practices:

– Create a repeatable monthly process

– Determine what to measure and how often

– Integrate data from all of your sales channels

– Measure forecast accuracy at the SKU, location, and customer planning level

– Maintain real-time, up-to-date data

 

The Inventory Management Tool That Puts These Techniques into Action

We’ve given you many inventory management techniques and tools but to make most of them work, and work well, you need cloud-based inventory management.

Software like DEAR Inventory can track, forecast, analyze, calculate, and control your stock in real-time, from anywhere in the world, regardless of how big or small your business is.

If you’re serious about upgrading, enhancing, and optimizing your inventory management, then DEAR Inventory is the tool for you.

Start your free 14-day trial today

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FIFO vs LIFO: What You Need to Know to Choose the Right Method

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FIFO vs LIFO? We help you decide which accounting method is best for your business.

FIFO vs LIFO? We help you decide which accounting method is best for your business.

FIFO vs LIFO: the great business accounting debate.

At the end of your fiscal year, you’ll probably use one of these two accounting methods to value your inventory and report your profitability.

But they’re distinctly different and will produce very different results on your balance sheet.

To help you understand their differences, we’ll look at the advantages and disadvantages of LIFO and FIFO and give you our opinion on which one you should use in your business.

But before we do that, let’s define FIFO and LIFO.

What are FIFO and LIFO?

To determine your cost of goods sold at the end of the fiscal year, you need to determine the cost of all the products in your inventory.

That’s where FIFO and LIFO come in. Here’s what they stand for:

What is FIFO?

FIFO (first in, first out) is an inventory accounting method that says the first items in your inventory are the first ones that leave – meaning you get rid of your oldest inventory first.

What is LIFO?

LIFO (last in, first out) is an inventory accounting method that says the last items in your inventory are the first ones that leave – meaning you get rid of the newest inventory first.

FIFO vs LIFO: Advantages and Disadvantages

FIFO and LIFO are exact opposite accounting methods that deliver dramatically different results. Before you implement either of them, you should know the primary benefits and drawbacks of each method, which we detail below.

Primary Benefits of FIFO

  • FIFO is the most common accounting method.
  • There are no GAAP or IFRS restrictions on the use of FIFO.
  • FIFO increases the value of your inventory during inflation because your older items with a lower cost of goods are now a smaller percentage of your sales.
  • There’s less record-keeping since the oldest items in your inventory are continually used up.
  • If costs are decreasing, you pay fewer income taxes in the near-term since the first items sold are the most expensive.

Primary Drawback of FIFO

  • If costs are increasing, you pay a larger amount of income taxes in the near-term since the first items sold are the least expensive.

Primary Benefit of LIFO

  • If costs are increasing, you pay fewer income taxes in the near-term since the last items sold are the most expensive and you report the fewest profits.

Primary Drawbacks of LIFO

  • If costs are decreasing, you pay a larger amount of income taxes in the near-term because the last items sold are the least expensive which lowers your cost of goods sold leading to a report of higher profits.
  • The IFRS doesn’t allow the use of the LIFO method.
  • LIFO increases your layers of record-keeping since the oldest layers could remain in your system for years.

FIFO vs LIFO: Which Should You Use?

Well, there are obviously more benefits to using FIFO than LIFO, especially in the food industry.

If you handle food inventory management or operate any business with perishable items, then you pretty much have to use FIFO. Otherwise, you’ll end up with obsolete inventory that you’ll have to write-off as a loss.

With that said, LIFO is a great method for non-perishable homogeneous goods like stone or brick. So, if you get a fresh batch of items like these, you don’t need to rearrange your warehouse or rotate batches since they’ll be the first ones out anyway.

The bottom line:

Most businesses will benefit from FIFO while a select few businesses in specific industries will be better off using LIFO.

Regardless of which method you choose, you’ll need a powerful inventory management software that can automatically calculate your cost of goods sold in real-time.

And you probably want a software that automatically tracks fluctuations in prices for POs and suppliers, and helps you get the best deal on your goods.

Where can you find an inventory management software that delivers accurate reporting and so much more?

Right here at DEAR Inventory.

Use DEAR to Make Accounting Easier with FIFO

DEAR seamlessly Integrates with top-of-the-line accounting apps like Xero and Quickbooks, it syncs all of your invoices, bills, and payments to an app that can be accessed anywhere, and is built for true cost calculations and the FIFO method of accounting. We’ll give you financial data in real-time for smarter decision-making and higher profits.

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

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3 Profit-Boosting Advantages of ABC Analysis of Inventory

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ABC analysis of inventory can help you increase your profits and decrease your costs.

ABC analysis of inventory can help you increase your profits and decrease your costs.

How do you effectively manage different types of inventory for maximum profit and lowest cost?

You segment them into different categories, making it easier to track them and use your resources appropriately.

So what method can you use to sort your inventory?

The answer: an ABC analysis of inventory.

ABC analysis will help you view your inventory from the perspective of best-selling to least-selling, and lowest inventory costs to highest.

We’ll show you what an ABC analysis of inventory is, why it’s important, and what advantages your company can gain by implementing it.

What is ABC Analysis of Inventory?

ABC analysis of inventory is a method of sorting your inventory into 3 categories according to how well they sell and how much they cost to hold:

  • A-Items – Best-selling items that don’t take up all your warehouse space or cost
  • B-Items – Mid-range items that sell regularly but may cost more than A-items to hold
  • C-Items – The rest of your inventory that makes up the bulk of your inventory costs while contributing the least to your bottom line

ABC analysis of inventory is one way of applying Pareto’s 80/20 principle. The bulk of your profits come from about 20{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3} of your total inventory.

Now that you know what ABC analysis means, let’s see why should you bother using it.

What is the Purpose and Importance of ABC Analysis of Inventory?

ABC analysis of inventory allows you to separate your most important products from your least important ones so that you know which products deserve most of your resources and attention to help you boost your sales and net margins.

ABC analysis of inventory helps you keep working capital costs low because it identifies which items you should reorder more frequently and which items don’t need to be stocked often – reducing obsolete inventory and optimizing the rate of inventory turnover.

Now that you know why ABC analysis is beneficial to businesses, let’s see it in practice.

What is an Example of ABC Analysis of Inventory?

The basic principle behind ABC analysis of inventory is that not every product has equal value. Because of this, you need to sort your inventory according to its value. Here’s what this process looks like in practice:

Imagine you’re a medical supplier. For the sake of this example, you sell 3 products:

  • Diagnostics
  • Orthopedics
  • Wheelchairs

You decide to perform an ABC analysis on your inventory to understand what’s selling the best, the worst, and what costs the most to hold in your warehouse.

Although wheelchairs are the smallest part of your inventory, they make up the bulk of your sales, around 60{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3}. They would clearly go into your A category.

Orthopedics make up about 30{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3} of your sales, and even though it uses over half of your warehouse space, it would still go into category B.

Diagnostics carry the last 10{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3} of your sales while taking up a fair amount of warehouse space, but since they provide the lowest profit margins, they go into category C.

Now that you have an understanding of why and how ABC analysis of inventory works, let’s look at a few of its advantages to your business.

What are the Advantages of ABC Analysis in Inventory Management?

Better Forecasting

ABC analysis of inventory helps you effectively forecast demand by splitting your inventory into categories that are based on customer demand.

Smarter Negotiations with Suppliers

After analyzing your inventory and sorting it into A, B, or C categories, you’ll know which products you should focus on buying at the lowest price, and which suppliers of those products you should negotiate with to bring their prices down so you can maximize your profit margins.

Strategic Pricing

Since you know items in category A are your best-sellers, you may be able to raise the prices of those products for increased revenue.

Whereas, with products in category B or C, you know you may have to use creative sale techniques like product bundling or social media sales to move these products out of your warehouse.

What is One Tool You Should Use With an ABC Analysis of Inventory?

ABC analysis of inventory only works if you’re effectively tracking and monitoring your orders and sales.

Without clear insight into inventory KPIs and other metrics, you won’t be able to sort your inventory into ABC categories.

There is one tool, however, that will provide those data points:

Cloud-based inventory management.

And a really good cloud-based inventory management system will give you much more than just solid reports, it will allow you to batch track your inventory, streamline your stocktaking process, and help you achieve inventory management best practices.

Where will you find a good cloud-based inventory management system?

Right here at DEAR Inventory.

Let DEAR Inventory Optimize Your Business

From real-time inventory tracking to accurate customer demand forecasts, DEAR Inventory provides the tools you need to grow your business without worrying about day-to-day administrative tasks. If you’re ready to swap headache-causing spreadsheets for productivity-boosting software, then DEAR Inventory is right for you.

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

Try DEAR for Free

No Credit Card Required

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Out of Stock? Here are 5 Ways to Prevent Stockouts for Good

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Running out of stock is one of the leading reasons for loss of revenue.

Running out of stock is one of the leading reasons for loss of revenue.

In business, there’s one phrase you never want to say:

“We’re out of stock.”

But we’ve all said it.

And every time we say it, we tell ourselves we won’t say it again.

Until we do.

You shouldn’t beat yourself up about it, though. Small business owners like you aren’t the only ones who suffer from stockouts.

Walmart executives reported they were leaving almost $3 billion on the table as a result of going out of stock.

What you should be concerned with is the incredibly high cost of regular stockouts.

In 2015, it was estimated that out of stocks cost retail businesses $634.1 billion in lost sales – 39{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3} higher than in 2012.

And those losses were estimated for just one industry.

Think of the billions lost across all industries due to stockouts…

To help you combat the cost of going out of stock, we’ll show you how stockouts happen and how to prevent them from happening to you.

But first, let’s briefly define “out of stock” and describe in more detail how it hurts your business.

What Does “Out of Stock” Mean?

Being “out of stock,” or OOS means that the inventory for a particular product is completely depleted.

Out of stocks typically occur when a business owner doesn’t order enough inventory to satisfy customer demand.

But not being able to sell when a customer wants to buy is only one major problem of stockouts. Read on to find out more.

What Are the Effects of a Stockout?

There are many negative effects of going out of stock. Here are a few:

  • Lost sales
  • Lost customers
  • Negative customer reviews
  • Damaged brand and reputation
  • Slow or declining business growth

Now, stockouts aren’t caused by mysterious forces. There are measurable reasons why you run out of inventory. We’ll tell you why you experience stockouts in the section below.

Causes of Stockout Situations

Stockouts have many causes, and understanding the causes will help you find better solutions.

Here are 3 reasons why you run out of stock:

Inaccurate Data

From sales numbers to stocktakes, inaccurate data will always lead to bad decision-making and poor business outcomes.

The numbers will help you predict the future and learn from the past. If they’re wrong, then you’re destined to fail.

Inefficient Product Ordering

Inaccurate data inevitably leads to inefficient product ordering.

If you don’t order enough product, you won’t keep up with customer demand – resulting in stockouts.

Manual Spreadsheets

If inefficient product ordering is caused by inaccurate data, then what causes inaccurate data?

Excel inventory management, or manual spreadsheets in general

In a study of errors in 25 sample spreadsheets, Stephen Powell from the Tuck Business School at Dartmouth College found that 15 workbooks contained a total of 117 errors.

While 40{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3} of those errors had little impact on the businesses studied, 7 errors caused massive losses of $4 million to $110 million, according to the researchers’ estimates.

One of our customers, Urban Couture, cited manual spreadsheets as the main problem in their business – causing stockouts and other issues.

You can read their story here.

5 Out of Stock Solutions

Knowing the causes of stockouts will point you in the right direction, but you’ll need actionable solutions if you hope to keep your warehouse well-stocked.

Here are 5 out of stock solutions to help you decrease and prevent stockouts:

Use RFID Tags

Radio Frequency Identification (RFID) tags allow you to easily track every product you store.

It makes your stocktaking process faster and more efficient. You can quickly search and find the products you need to retrieve. And RFID tags allow you to scan any item and find out in real-time how much of that item you still have in stock.

Researchers at the University of Arkansas found that RFID technology helped reduce stockouts by 16{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3}. If you want to reduce stockouts too, then implement RFID tags.

Forecast Demand

We pointed out earlier that stockouts are caused by inaccurate forecasting.

So, to avoid going out of stock, you should follow demand forecasting best practices.

Some best practices include:

  • Determining what to measure and how often (i.e. competitors sales data, POS data, frequency of stockouts, etc.)
  • Integrating data from all of your sales channels, especially if you’re running an omnichannel ecommerce strategy
  • Creating a repeatable monthly process that analyzes previous forecasts and compares them to actual market results

Use a Reliable Order Point Formula

A reorder point formula tells you approximately when you should order more stock – when you’ve reached the lowest amount of inventory you can sustain before you need more.

You can stop being a victim to market spikes and slumps by using a proven, mathematical equation to help you consistently order the right amount of stock each month.

Here’s the reorder point formula you can use today:

(Average Daily Unit Sales x Average Lead Time in Days) + Safety Stock = Reorder Point

Order Safety Stock Inventory

Safety stock inventory is a small, surplus amount of inventory you keep on hand to guard against variability in market demand and lead times.

It will help you protect against unexpected spikes in demand, compensate for inaccurate market forecasts, add a buffer for longer-than-expected lead times, and ultimately, prevent stockouts.

To help you calculate safety stock, here’s the formula we recommend using if you’re just starting out:

(Max Daily Sales x Max Lead Time in Days) – (Average Daily Sales x Average Lead Time in Days) = Safety Stock Inventory

Use a Cloud-Based Inventory System

A cloud-based inventory management system lets you track your inventory in real-time from anywhere in the world. You’ll know up-to-the-minute when stock is low or sales are high.

With that kind of insight, you’ll be able to send out purchase orders right when you need them.

But if you don’t want to manually send out those orders, you don’t have to. Cloud-based inventory management allows you to set an automated reorder point. Since the software automatically tracks your inventory, it’ll know when to automatically send out a purchase order for you, too.

Plus, it integrates with top business apps like Xero so you don’t need to operate multiple apps on multiple screens – you can do everything on one platform.

What kind of cloud-based inventory management system do we recommend?

DEAR Inventory, of course.

How to Prevent Stockouts for Good

Preventing stockouts isn’t easy and it won’t happen overnight.

The tips we gave you in this post will help you in big ways if you implement them correctly.

Beyond that, you’ll have to continue to test solutions and pay attention to your market.

To do that, you’ll need a tool that can collect and analyze all the data you want to be measured for accurate forecasts.

DEAR Inventory can do that for you. And you can test drive the software for 14-days free. Just click the button below to learn more.

Cloud-Based Inventory Management That Helps You Finally Stay “In Stock”

From real-time inventory tracking to automated sales reports to accurate demand forecasts, DEAR Inventory is the tool you need to effectively manage your supply chain, stock your warehouse, and satisfy your customers.

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

Try DEAR for Free

No Credit Card Required

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Poor Inventory Management: What’s Causing It and How to Stop It

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Poor inventory management can cost you time, money and your business

Poor inventory management can cost you time, money and your business

Walmart lost $3 billion in 2013 due to poor inventory management, leading to frequent stockouts.

If that’s how improper inventory management affects a mega-corporation, how do you think it would affect your business?

We don’t want to be too hyperbolic here, but poor inventory management could cost you your business.

That’s why it’s important to recognize that this kind of fundamental problem would negatively affect your bottom line and business growth long-term.

So, how do you know if you’re managing your inventory poorly?

Poor Inventory Management Symptoms

Depending on your industry, there are many signs your inventory management is bad and getting worse.

Here are the most obvious symptoms of poor inventory management:

Of course, there are usually many factors that help produce these negative symptoms, but all of them have a root connection to the way you manage your inventory.

Which leaves us with this question:

What causes poor inventory management?

Causes of Poor Inventory Management

There could be a million reasons why you’re mismanaging your inventory.

This isn’t an exhaustive list, but it does outline a few of the most probable reasons why your inventory management is suffering.

Spreadsheets

Excel inventory management is usually the first tool small-to-medium sized businesses (SMBs) use to manage their inventory.

While spreadsheets work fine in the beginning when you’re a small operation, they can quickly lead to severe issues.

In a study of errors in 25 sample spreadsheets, Stephen Powell from the Tuck Business School at Dartmouth College found that 15 workbooks contained a total of 117 errors.

While 40{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3} of those errors had little impact on the businesses studied, 7 errors caused massive losses of $4 million to $110 million, according to the researchers’ estimates.

Manual Inventory Tracking and Stocktaking

Along the same lines as spreadsheets, manual inventory tracking and stocktaking are suitable for small businesses but becomes time-consuming and error-prone as your company grows.

You’ll always be one-step behind your actual inventory levels, which will cause ordering issues.

If for example, your assistant manager forgets a crucial part of your stocktaking process – like updating your data – and today is when you typically make purchase orders, you may order too much and run into the problem of obsolete stock or order too little and experience stockouts.

A Large Inventory

Large volumes of inventory don’t just lead to more management headaches – they can cut into your profits as well.

Most businesses have 20-40{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3} of their working capital tied up in inventory.

Inventory reduction is difficult to do, but it’s essential if you want to go from poor inventory management to great inventory management.

Inadequate Forecasting

If you don’t use or have access to accurate reports regarding sales trends, best-selling items, customer behavior, and the like – you’ll either order too much and experience the problems of a bloated inventory, or order too little and experience stockouts and lost customers.

With accurate reports, you can forecast your customers’ future behavior and order accordingly to meet customer demand without exceeding your budget.

2 Solutions to Poor Inventory Management

While we could go on with causes of poor inventory management, you probably have a good idea of why you may be in the mess you’re in – so let’s get to the solutions.

The first solution we recommend is to check out our post on inventory management best practices. It’ll walk you through 10 ways to transform the way you manage your inventory and warehouse.

The second solution is to test out our cloud-based inventory management software.

Shameless plug, we know.

But here’s why it’s a great solution to the problem of poor inventory management:

It solves most, if not all of the issues we’ve listed in this post.

  • Accurate forecasting
  • Real-time inventory tracking
  • Automated data-entry
  • Etc.

The best part is, it’s free to try for 14 days.

If you want to upgrade your inventory management, then we have the software you need to make it happen.

Turn Poor Inventory Management into Excellent Inventory Management

Our cloud-based inventory management software will help you grow your business while maintaining efficiency and accuracy in your warehouse. You’ll have in-depth insight into your customers’ buying behavior, the ability to precisely organize your inventory into categories and batches, along with streamlined integration with essential business apps for ecommerce and accounting. You’ll get all of this and more in one centralized hub that you can access from anywhere in the world.

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

Try DEAR for Free

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Obsolete Inventory: How to Manage It, Get Rid of It, and Prevent It

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Obsolete inventory is a problem that many businesses struggle to solve. We’ll show you how to get rid of it, and what tools you need to prevent it.

Obsolete inventory is a problem that many businesses struggle to solve. We’ll show you how to get rid of it, and what tools you need to prevent it.

Obsolete inventory is the worst kind of inventory you can have (next to no inventory, of course).

It increases your cost of inventory and is hard to get rid of.

If you have too much inventory on hand that’s not selling, chances are you want to know how to get rid of it.

We’ll show you how to do that.

We’ll also show you the causes of obsolete inventory and how to prevent having any in the future.

At the end of this post, we’ll show you how you can better manage obsolete inventory going forward.

Before we get to all of that, let’s define obsolete inventory.

What is Obsolete Inventory?

Obsolete inventory is often referred to as “obsolete stock,” “dead inventory,” or “excess inventory.” These terms all apply to any items that have reached the end of its “product lifecycle,” which means there is no market demand for the product anymore.

Most businesses determine that its inventory is obsolete once there are no sales after a set amount of time.

Obsolete inventory is a warning sign that you haven’t been following inventory management best practices.

Read on to discover the bad practices you might have engaged in that contributed to your obsolete stock.

What Causes Excess and Obsolete Inventory?

There are many causes of excess and obsolete inventory. Here are a few of the main ones:

Inaccurate Forecasting of Customer Demand

Inaccurate or incorrect forecasting of customer demand can cause you to order more stock than you need – leaving you with obsolete inventory after selling only a portion of what you stocked.

An example of inaccurate forecasting in food inventory management would be if McDonald’s A ordered thousands of McRibs for McRib season – expecting a huge demand for McRibs – but failed to account for McDonald’s B in another part of town who would be supplying the same product – lowering A’s expected sales of McRibs and resulting in excess stock.

Poor Quality Product or Design

Offering a high-quality product should be an obvious step for reducing obsolete inventory, but plenty of retailers, wholesalers, and manufacturers sell shoddy products.

If your product doesn’t meet the standards of consumers, or it fails to offer anything new to compete against existing products, it probably won’t sell.

This happened to Microsoft’s iPod competitor, Zune, between 2006 when it was released, and 2011 when they stopped producing them.

According to Robbie Bach, the former leader of Microsoft’s home entertainment and mobile business, “…we ended up chasing Apple with a product that actually wasn’t a bad product, but it was still a chasing product, and there wasn’t a reason for somebody to say, oh, I have to go out and get that thing.”

The result was that Microsoft had a massive store of unsold Zunes that they had to simply write-off as a loss.

Avoiding Obsolete Inventory

You might realize you have obsolete inventory – or are on your way to holding excess stock – but you’re choosing to do nothing about it.

Worse, you might believe that sometime in the future there will be a new surge in consumer demand and your obsolete inventory will vanish.

Letting obsolete inventory waste away in your warehouse won’t solve the problem, and neither will fantasizing about it disappearing in a stroke of pure luck. Both of these strategies will only increase the amount of dead stock you accumulate.

If you have obsolete inventory, the best thing to do is deal with it right away. Read on to find out how.

How to Get Rid of Obsolete Inventory

Obsolete inventory will continue to hurt your business the longer it sits in your warehouse. Here are a few ways to get rid of it:

Write-Off Obsolete Inventory

Obsolete inventory write-offs are a common practice for reducing excess stock.

Companies often charge obsolete inventory to their cost of goods sold at the end of the year – taking the loss and moving forward.

Donate Obsolete Inventory for Tax Deductions

If you have a surplus of inventory that isn’t going to sell, then donate it to charity and get some tax deductions.

According to Gary C Smith, “businesses can earn a federal income tax deduction under Section 170 ( e )(3) of the U.S. Internal Revenue Code.

The IRS Code says that regular C corporations may deduct the cost of the inventory donated, plus half the difference between cost and fair market value.

If you’re an S corporation, partnership, LLC or sole proprietorship, you qualify for a straight cost deduction.”

Gary’s organization, the National Association for the Exchange of Industrial Resources (NAEIR), can help you get a tax break for donating your obsolete inventory.

Remarket Items

If you need to unload your growing inventory more quickly, then try remarketing the item.

If you’re a retailer, reposition the item in your store. Switch up the shelf arrangements. Freshen your displays.

Try selling your items on different social networks. Social media selling is a great way to gauge what marketing messages are working and what aren’t.

You could also try mobile marketing where you sell directly through mobile phones if you know your customers are using their mobile devices most of the time.

Or better yet, implement an omnichannel ecommerce strategy where you try various marketing tactics and messages across all your sales channels.

Sell at a Discount

An easy and straightforward way to move excess inventory is to offer a discount.

Lowering prices doesn’t feel good, but a rising cost of inventory is much worse.

Start small, 10-20{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3} off, and then continue to increase the discount as needed to sell the items.

You could also run a flash sale (which are popular on social media platforms) or a storewide blowout sale event.

The plus side to big liquidation sales is that it can draw in customers you would’ve never reached before.

One thing to keep in mind is to refrain from holding sales events too often. This will train customers to wait for a sale instead of buying at your preferred price.

Bundle Products

Product bundling is another excellent way to get rid of obsolete inventory.

If items aren’t selling individually, bundle them with items that are similar or sometimes bought together.

You could even bundle items AND offer a discount on the bundle if you’re trying to move as much stock out of your warehouse as quickly as possible.

Liquidate Your Items

If your customers refuse to buy your obsolete inventory, no matter how much you market, discount, and bundle it, then you can always sell your excess stock to liquidation organizations.

These are businesses that will buy your products at the lowest minimum price to help you free up warehouse space and capital.

Here’s a good place to get started if you choose this option.

How to Prevent Obsolete Inventory

If you’ve gotten rid of your excess stock and want to make sure you never have to deal with it again, here are a few tips for preventing obsolete inventory.

Forecast Demand

As we pointed out in the “Causes of Obsolete Inventory” section of this post, accurately forecasting demand is a major factor in whether you’ll have obsolete inventory or not.

It might be the biggest factor.

Best practices are to pay attention to sales trends from past years, mostly buy products that have a proven track record for selling consistently well, and pay attention to what your competitors are selling and how well they’re selling it.

Know Your Reorder Point

Using an accurate reorder point formula will help you predict the right time to order more inventory and how much you’ll need to order.

It will also help you understand your current rate of inventory turnover and give you insight into how to increase it.

Here’s a basic formula you can use to get started:

(Average Daily Unit Sales x Average Lead Time in Days) + Safety Stock = Reorder Point

Track Inventory Levels in Real-Time

If you want granular insight into your inventory levels, then you should use something like a cloud-based inventory management system that allows you to know how much inventory you have at all times.

This tool will show you whether you’re carrying excess stock and need to ramp up your sales efforts, or if you’re getting low on certain products and need to reorder.

How to Better Manage Obsolete Inventory

Obsolete inventory management is mostly about understanding your customers and making sure you’re matching their demands.

If you don’t, you’ll inevitably order more than you need or order products your customers don’t want.

So what’s the best tool for forecasting customer demand?

The same tool we mentioned above that tracks inventory levels in real-time – cloud-based inventory management software.

It allows you to track your sales alongside your stock for deeper insight into your customers’ buying patterns and the success of your marketing strategies.

If you want to prevent obsolete inventory from raising your costs and cluttering your warehouse, we can help.

Prevent Obsolete Inventory with This Cloud-Based Solution

Through accurate forecasting reports, you can predict when sales will rise, dip, and plateau. You’ll know what sells the most and what doesn’t sell at all. Using this data, you’ll be able to order just enough to satisfy customer demand without piling up more inventory than you need.

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

Try DEAR for Free

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Why Economic Order Quantity May Be Right (Or Wrong) for You

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Economic Order Quantity can take the guesswork out of reordering stock, find out how.

Economic Order Quantity can take the guesswork out of reordering stock, find out how.

Would you like to know exactly when you need to reorder stock and how much you need to reorder?

Then you need to calculate your economic order quantity (EOQ).

EOQ – much like a reorder point formula – helps you take the guesswork out of stocking your warehouse and keeping up with customer demand.

We’ll show you how to use an EOQ formula, it’s advantages and disadvantages, and the one tool you need to optimize your use of EOQ and any other inventory formulas.

What is Economic Order Quantity?

Economic order quantity is the lowest amount of inventory you must order to meet peak customer demand without going out of stock and without producing obsolete inventory.

That’s the ideal use of EOQ.

Its purpose is to reduce inventory as much as possible to keep the cost of inventory as low as possible.

The EOQ model assumes that demand is constant and that inventory is depleted at a predictable rate. While this isn’t the case for many businesses, the model still helps companies better approximate when they need to replenish their inventory and how much they should order.

How Do You Calculate Economic Order Quantity?

To help you calculate EOQ, here is the formula from Kenneth Boyd, author of Cost Accounting for Dummies:

Economic order quantity uses three variables: demand, relevant ordering cost, and relevant carrying cost. Use them to set up an EOQ formula:

  • Demand: The demand, in units, for the product for a specific time period.
  • Relevant ordering cost: Ordering cost per purchase order.
  • Relevant carrying cost: Carrying costs for one unit. Assume the unit is in stock for the time period used for demand.

Note that the ordering cost is calculated per order. The carrying costs are calculated per unit. Here’s the formula for economic order quantity:

Economic order quantity = square root of [(2 x demand x ordering costs) ÷ carrying costs]

That’s easier to visualize as a regular formula:

381676.image0

Q is the economic order quantity (units). D is demand (units, often annual), S is ordering cost (per purchase order), and H is carrying cost per unit.

What are the Advantages of EOQ?

Economic order quantity has been successfully used for decades by businesses of all types, so it certainly has a few advantages.

Here are some of them:

Helps Lower Inventory Costs

The primary purpose of EOQ is to help keep inventory carrying costs as low as possible.

The more inventory you have on hand, the more you have to pay for insurance, taxes, security, etc.

Accurately calculating how much inventory you need will help you maintain a budget you can afford.

Makes Restocking Easy

Economic order quantity can help you understand how often you should be ordering. You may discover that ordering small quantities more often is better for your bottom line or vice versa.

By calculating how much you need in proportion to how much you sell over a given period of time, you can ensure you always have enough stock to satisfy your customers.

Helps You Find the Best Deal

Many vendors advertise deals throughout the year to entice you to buy more of their inventory which usually ends up increasing your cost of inventory even if you received a discounted price.

The EOQ model helps you purchase only what you’re going to use.

It’ll help you take advantage of a vendor deal if, after plugging the numbers into your EOQ formula, you find out you’re not overpurchasing but getting the right amount at a lower price.

What are the Disadvantages of EOQ?

While economic order quantity has some benefits and a long history of use, it’s not without its shortcomings.

Here are a couple of them:

Requires Numerous Assumptions

The largest complaint about EOQ is that it requires numerous assumptions.

The model assumes that there’s steady demand, steady sales, and fixed costs.

Plus, the basic EOQ model assumes you have a one-product business. If you sell multiple products, you’ll have to calculate and track each one separately.

Doesn’t Account for Fluctuations During Seasons

The biggest problem with assumptions of steady demand and steady sales in the EOQ model is that it doesn’t allow you to account for fluctuations in demand during holidays or particular seasons.

If your sales yo-yo throughout the year, then EOQ won’t be able to keep up.

How to Make EOQ Work for You

Realistically, you’re unlikely (and not lucky enough) to operate a business with fixed rates and steady sales that almost never fluctuate.

If you run a business similar to the rest of ours, then you’re constantly dealing with uncertainties in your reorder point and customer demand forecasts.

EOQ can still help you make more informed guesses about when and how much inventory should be ordered, but to make EOQ calculations work properly, you’re going to need a way to monitor and track your order quantities, reorder points, safety stock levels, etc.

With the right inventory management system, you could even forget about EOQ altogether and use more up-to-date formulas that automate reordering for all of your products.

Interested in such a system?

Then we can help…

Our Inventory Management System Can Improve EOQ or Make it Irrelevant

Whether you want to use economic order quantity or not, our cloud-based inventory management system will help you streamline your business processes. From tracking your inventory in real-time to producing up-to-the-minute reports on past sales and future projections, DEAR Inventory will make sure you avoid stockouts and obsolete inventory while effectively serving your customers.

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

Try DEAR for Free

No Credit Card Required

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Minimum Order Quantity: What It Is and How to Make It Work for You

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A minimum order quantity is often seen as a necessary evil in wholesaling, retailing, and manufacturing.

Some businesses like it, some businesses hate it, and some businesses have to use it.

But what is a minimum order quantity exactly? What are its benefits for suppliers? And how do buyers effectively deal with it?

Read on to answer all of these questions and learn how suppliers can use minimum order quantities to their advantage and how buyers can make it worth their time.

What Is a Minimum Order Quantity?

A minimum order quantity (MOQ) is the lowest set amount of stock that a supplier is willing to sell. If you can’t purchase the MOQ of a specific product, then the supplier won’t sell it to you.

All MOQs vary, depending on the product.

High-ticket items that cost more to produce will usually have a lower MOQ than low-ticket items that are easy and cheap to produce.

If you’re a buyer, we’ll show you how to navigate MOQs later in this post.

If you’re a supplier, let’s look at what its benefits are to your business.

What Are the Benefits of MOQ’s for Wholesale Suppliers?

The purpose of minimum order quantities is to allow suppliers to increase their profits while getting rid of more inventory more quickly and weeding out the “bargain shoppers” simultaneously.

A minimum order quantity is set based on your total cost of inventory and any other expenses you have to pay before reaping any profit – which means MOQs help wholesalers stay profitable and maintain a healthy cash flow.

Wholesalers don’t always prefer this way of doing business, but in many cases, wholesalers are forced to sell using MOQs because they’re forced to buy a minimum of stock from the manufacturer.

Here’s an example of how to use MOQs in your business:

Let’s say you sell golf balls. For retail customers who are buying in small quantities, you sell one pack of golf balls for $10.

If you want to sell wholesale, then you should reduce your price just enough to make it a good deal for the buyer, while allowing you to make a larger profit and quickly reduce your inventory at the same time – like golf ball packs for $5 a piece with an MOQ of 100 packs.

The goal is to attract a small amount of buyers who purchase the largest amount of your stock.

How Do You Deal With MOQ’s If You’re a Buyer?

Since you know minimum order quantities are often used by wholesalers to find the best buyers and stay profitable, you can attempt to present yourself as their ideal client while negotiating lower prices or looking for the deal that is the most mutually beneficial.

Here are a few tips for dealing with MOQs and making them worthwhile:

1. Negotiate a Lower Price

If you want to make MOQs worth it, then you should start by attempting to negotiate a lower price.

The supplier may not be able to lower the price, but you’ll never know if you don’t ask.

If you develop a good relationship with a supplier, or it’s a slow time of year for them, or if they’ve overstocked their shelves, you’ll have a better chance at persuading a supplier to lower their prices.

But if the supplier is in high-demand with loyal customers, it’ll be difficult to get a deal. In that situation, if you want the product bad enough but don’t want the full minimum quantity, your best course of action would be to pay more to receive less.

2. Buy From Legitimate Wholesale Markets Online

B2B marketplaces like Alibaba or Wholesale Central help you source products from a large variety of suppliers, allowing you to easily compare prices and deals to find the one that matches your needs.

The caveat to online marketplaces is that you should still vet the suppliers you want to buy from, even if the marketplace initially vetted them.

The best part about B2B marketplaces is that you can usually find more low or non-existent MOQs online than you could otherwise.

3. Buy From a Trader

Trading companies can place one order for multiple buyers. This means you can meet the supplier’s minimum order requirement without paying full price and without taking the full inventory.

This lowers the price of the MOQ for all buyers involved and reduces the impact of holding more inventory than you need.

Beyond Minimum Order Quantities

Minimum order quantities are just one tool out of many that suppliers can use to optimize their business.

If you’re selling online wholesale, you should enforce MOQs, but you should also try reducing your shopping cart abandonment or choose the right selling environment when deciding between Amazon Seller Central vs Vendor Central.

Similarly, MOQs are just one of many hurdles that buyers have to overcome.

If you’re buying MOQs, than you should carefully consider your reorder point and rate of inventory turnover.

But If you’re a buyer or a seller, there’s one tool you both should be using:

A cloud-based inventory management system.

This will allow you to know how much you need to sell or buy in real-time, provide accurate forecasts for future demand, and enable easier stocktaking for streamlined productivity.

If you’re sick of Excel inventory management and are looking for a better option, you just found it.

Start your free 14-day trial today

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10 Inventory Management Best Practices for Improving Your Business

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Are you managing your inventory as effectively as possible?

It’s OK if you’re not.

Most businesses have plenty of areas to improve, especially in their warehouses.

But if you don’t begin the process of upgrading and streamlining your business operations now, you’ll easily slip into bad habits, inefficient practices, and a high cost of inventory.

By following inventory management best practices, you’ll run and manage an efficient and effective business and warehouse year after year.

 

Inventory Management Best Practices

There are many industry-specific inventory management best practices you can follow, but there are also a few general practices that every business can benefit from.

Here are 10 inventory methods and practices that will help you optimize your warehouse processes.

 

1. Categorize Your Inventory Using ABC Analysis

ABC analysis is a technique for arranging your inventory into a hierarchy of most important to least important items.

Here’s what an ABC analysis would look like in practice:

– A-items are the best-selling, highest priority stock and require regular reordering and constant quality review

– B-items are valuable, medium-priority stock and usually require monthly reordering

– C-items are low-priority stock and are typically carried in high volumes with minimal reordering

Organizing your stock within your warehouse according to how they sell and how much value they bring your business will help you optimize storage space and streamline order fulfillment.

 

2. Optimize Your Pick and Pack Process

The pick and pack process is a set of procedures and tools that your employees use to fulfill customer orders quickly and efficiently.

Types of pick and pack processes:

– Discrete order picking

– Batch picking

– Wave picking

– Zone picking

Here are 5 ways to optimize the pick and pack process for effective inventory management:

1. Design your warehouse for efficiency by placing your top-selling items nearest the packing station

2. Keep your warehouse well-organized by cleaning every area and removing clutter

3. Implement and program a warehouse management system (WMS) so that the items picked are listed in the order the picker will find them.

4. Double check each order for accurate counting

5. Use barcodes or RFIDs on every piece of inventory for easy counting

 

3. Establish Your Inventory KPIs

Inventory KPIs measure your performance in a particular area over a specific amount of time toward a certain goal.

They help to eliminate guesswork by giving you clear milestones to hit every week, quarter, or year.

With them, you’ll have the data you need to make smart, strategic decisions for your business.

Here are 6 inventory KPIs you should focus on:

1. Inventory carrying costs

2. Inventory write-off  and  inventory write-down

3. Rate of inventory turnover

4. Cycle Time

5. Order Status and Tracking

6. Fill Rate

 

4. Use Batch Tracking

Batch tracking is sometimes referred to as lot tracking, and it’s a process for efficiently tracing goods along the distribution chain using batch numbers.

A “batch” refers to a particular set of goods that were produced together and which used the same materials.

Use an automatic batch tracking system in order to enter information about all the products within your batch – keeping that information at your fingertips if you need to access it quickly, as in the case of a product recall.

 

5. Use an Accurate Reorder Point Formula

A reorder point formula tells you approximately when you should order more stock – when you’ve reached the lowest amount of inventory you can sustain before you need more.

You can stop being a victim to market spikes and slumps by using a proven, mathematical equation to help you consistently order the right amount of stock each month.

This equation is called a reorder point formula.

Here’s a reorder point formula you can use today:

(Average Daily Unit Sales x Average Lead Time in Days) + Safety Stock = Reorder Point.

 

6. Carry Safety Stock Inventory

Safety stock inventory is a small, surplus amount of inventory you keep on hand to guard against variability in market demand and lead times.

Without safety stock inventory you could experience:

– Loss of revenue

– Lost customers

– And a loss in market share

What makes safety stock a critical inventory management best practice is that you’ll reap all these benefits by using it:

– Protection against unexpected spikes in demand

– Prevention of stockouts

– Compensation for inaccurate market forecasts

– A buffer for longer-than-expected lead times

 

7. Optimize Your Inventory Turnover Rates

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.

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.

Here’s a simple formula for calculating your inventory turnover rate:

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

Here are 4 ways to increase your rate of inventory turnover:

1. Experiment with pricing

2. Liquidate obsolete stock

3. Forecast Customer Demand

4. Redistribute your inventory to other warehouses

 

8. Streamline Your Stocktake

Streamlining your stocktaking process – the steps you take to count inventory – will help you mitigate 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 are a couple of ways to streamline your stocktake:

– Schedule your stocktakes to reduce impact on business operations

– Clean and organize your stockroom before performing your stocktake

– Know what stock you’re counting and how you’re counting it

– Open and count absolutely everything – no guesswork allowed

 

9. Reduce Your Inventory

Most businesses have 20-40{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3} of their working capital tied up in inventory – so if you’re closer to the 40{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3} end, it’s probably time to create an inventory reduction strategy.

The goal is to find your inventory sweet spot  – where you have the lowest possible inventory levels without being understocked – in order to maximize growth and profitability for your business.

Here are 3 inventory reduction methods you can follow:

1. Lower lead times by tracking your existing lead times, sharing sales data with your suppliers, and reducing minimum order quantities (MOQs)

2. Eliminate obsolete inventory by reworking or modifying your stock, offering a discount, or dating it for a tax write-off

3. Improve inventory forecasting through real-time tracking and reporting, integrated communication, and large volume inventory management tools

 

10. Use a Cloud-Based Inventory Management System

One of the best business-changing decisions you can make is to stop using Excel inventory management and start using cloud-based inventory management.

Unlike locally-installed applications, Cloud-based inventory management software allows you to pay for the features you need now and seamlessly upgrade when you need to in the future.

You’ll pay a single, predictable subscription fee for a “package” that best suits your particular feature needs and team size; then, upgrading is just a few clicks away when your business growth justifies a more powerful platform.

On top of stress-free upgrades, cloud software companies work in the background to make sure things continue to run smoothly, and should you need any questions answered or breaks fixed, they’ll have a support team standing by to assist you.

 

A Bonus Inventory Management Best Practice

Point #10 above is not just a best practice…

It’s the one tool that brings all the other best practices together.

From streamlining your stocktake to optimizing your inventory turnover rates to batch tracking – a cloud-based inventory management software will help you improve every area of your business operations.

At least, that’s what our software will do for your business.

If you’re looking for a robust inventory management solution to upgrade and optimize your inventory processes, you just found it.

 

Start your free 14-day trial today

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