Year-End Inventory Assessment Prepares Your Business for 2017
Why is a year-end inventory assessment a good idea? First of all, it's generally a slow time for many small businesses, so the opportunity exists for you and your staff to take a focused look at your stockpiled products. Secondly, a full-scale inventory assessment provides a clear-eyed view of where things stand in terms of your current inventory, and what actions must be taken to be prepared for anticipated increased customer demand in the New Year.
As noted by Casandra Campbell at Shopify, good inventory management serves your business in numerous ways:
- Getting rid of anything perishable. If your products come with an expiration date, you don't want to risk unnecessary spoilage that amounts to inventory you can't sell.
- Eliminating "dead" stock. Products go in and out of fashion. Don't get stuck with a warehouse full of yesterday's "in" thing.
- Reducing storage expenses. Unnecessary or overstocked items result in less available warehouse space for revenue-generating products.
Inventory management "affects both sales (by dictating how much you can sell), and expenses (by dictating how and what you have to buy)," Campbell points out. "Both of these things factor heavily into how much cash you have on hand."
So what are inventory assessment "best practices" to keep in mind?
Adhere to the FIFO Principle
Depending on your product, it's always good to remember "First-In First-Out" (FIFO) as an organizing principle. Sell old stock (first-in) before selling new stock (especially perishable/expiration date goods). Generally speaking, this means ensuring old stock remains at the front of the warehouse, with new stock being added from the back as it comes in.
Follow "ABC Classification" of Goods
Inventory management is more efficient if you prioritize your most important goods from the others. This approach identifies "items that will have a significant impact on overall inventory cost," says warehouse and logistics expert Dan Dowling. Here's how he defines ABC classification:
A - High-demand products that move fast and are most critically related to targeting services levels and satisfying customers
B - Somewhat less important items that are "typically mid-range in inventory value and order frequency"
C - These goods are infrequently ordered, therefore stocked in small quantities
Prepare your Staff for a Physical Inventory
A physical inventory often involves counting your entire warehoused inventory at one time, such as at the end of the year. In many cases, this is an "all-hands-on-deck" enterprise, so let employees know well ahead of time their level of expected participation. Inventory expert Dave Carlson advises printing out "item count sheets by store area, category, aisle, SKU, etc.—whatever works best for your business." Carlson suggests following steps:
- Separate the store floor into sections, putting one or two employee "counters" in each section. These counters should never estimate stock, but initial every entry following their count instead. Instruct counters to look everywhere in their sections for misplaced products—on the floor, behind shelves, etc.
- If possible, designate a troubleshooter in the event that your count is significantly off anticipated amounts; this individual can "research the discrepancy—in real time, if possible—so you can try to find the missing product."
Invest in Inventory Management Software
The ideal way to remove inventory-related ambiguity or human error is by investing in sophisticated inventory management software. Rather than rely on a time-consuming physical inventory, look into purchasing software that efficiently tracks customer orders, monitors levels of inventory, etc. This automated process offers an accurate and dependable view of what stock you have and don't have, what's been ordered or should be ordered, and allows a variety of departments to access the data when needed. You also come away with a thorough historical record of prior inventory management activity.
Imagine the peace of mind on January 1, 2017, knowing that you have a comprehensive grasp on existing inventory and are well-positioned to handle new orders for the New Year’s first quarter and beyond.