A Guide to Inventory Management

In distribution, your money is tied up in inventory, not people. There are three nagging questions that, depending on how you suss out the answers, could mean success or failure for your business.In distribution, your money is tied up in inventory, not people. There are three nagging questions that, depending on how you suss out the answers, could mean success or failure for your business.

  • What do I need to buy?
  • When do I need to buy it?
  • How many should I buy?

How do you get accurate answers to these questions? There are three key factors you need to consider.

Trends

In short, project what you’ll need based on history. Make sure to make adjustments for exceptions – for instance, if you sold an extra 1,000 pallets of toys because Walmart opened three new stores and needed stock for their grand opening, you don’t want to base future buying decisions on a one-time occurrence.

Also take into account seasonal variances. If those same new Walmart locations decided to continue buying from you, make sure you time your orders and stock items accordingly. Having an overstock of Christmas trees collecting dust in your warehouse through the summer or patio furniture in the winter is costing you money and decreasing your cash flow.

Lead Times

When timing your purchases, keep in mind the location of your suppliers. If overseas, you need to account for that ahead of time. Remember, a lot can happen when you’re expecting shipments from abroad. From violent storms that claim containers off cargo ships to the dreaded sea pirates helping themselves to your shipment, there are many variables that can make your lead time much longer – make sure to take these into consideration.

If overseas suppliers are still worth the gamble, ensure you have a solid back-up plan in place in case something does go awry, ideally, with a supplier closer to home.

Best Customers

This works hand-in-hand with trends. Who are your best customers and what do they buy regularly? Now, in order to do this effectively, you need to know who your best customers truly are.

Hint: They aren’t always the customers with the biggest orders. If they nickel and dime you, banking you’ll still do business, they could be costing you money. If they order big but return a lot of the product and don’t pay their bills on time, you are losing cash flow and revenue on those orders. Often the worst customers will commit all three of these offenses.

Discover your best customers by researching those customers who buys consistently, are happy with your product and pay invoices on time. And ensure your inventory is managed accordingly. Read more about inventory management in Top 5 Reasons Supply Chains Fail.

  • What do I need to buy?
  • When do I need to buy it?
  • How many should I buy?

How do you get accurate answers to these questions? There are three key factors you need to consider.

Trends

In short, project what you’ll need based on history. Make sure to make adjustments for exceptions – for instance, if you sold an extra 1,000 pallets of toys because Walmart opened three new stores and needed stock for their grand opening, you don’t want to base future buying decisions on a one-time occurrence.

Also take into account seasonal variances. If those same new Walmart locations decided to continue buying from you, make sure you time your orders and stock items accordingly. Having an overstock of Christmas trees collecting dust in your warehouse through the summer or patio furniture in the winter is costing you money and decreasing your cash flow.

Lead Times

When timing your purchases, keep in mind the location of your suppliers. If overseas, you need to account for that ahead of time. Remember, a lot can happen when you’re expecting shipments from abroad. From violent storms that claim containers off cargo ships to the dreaded sea pirates helping themselves to your shipment, there are many variables that can make your lead time much longer – make sure to take these into consideration.

If overseas suppliers are still worth the gamble, ensure you have a solid back-up plan in place in case something does go awry, ideally, with a supplier closer to home.

Best Customers

This works hand-in-hand with trends. Who are your best customers and what do they buy regularly? Now, in order to do this effectively, you need to know who your best customers truly are.

Hint: They aren’t always the customers with the biggest orders. If they nickel and dime you, banking you’ll still do business, they could be costing you money. If they order big but return a lot of the product and don’t pay their bills on time, you are losing cash flow and revenue on those orders. Often the worst customers will commit all three of these offenses.

Discover your best customers by researching those customers who buys consistently, are happy with your product and pay invoices on time. And ensure your inventory is managed accordingly. Read more about inventory management in Top 5 Reasons Supply Chains Fail.

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