New Year’s resolutions are not limited to your personal goals in the new year. You should consider resolutions for your business as well.
A good place to start is reviewing your inventory practices from 2022. What did you do right? What mistakes were made? Did you overlook specific costs? What is the plan for 2023?
Types of Inventory Costs
As you plan your business’s 2023 goals, there are three categories of inventory costs for you to consider.
Consider your costs for labor, transportation, processing, and invoicing. These are ordering costs, and they are important to track. There is always an ordering cost, regardless of the order size.
Multiple items fall under the “carrying costs” umbrella. Taxes, insurance, replacement of goods, and employee expenses all qualify. Tracking these costs allows you to have a better idea of what your profit margins will look like.
These costs represent lost sales from a lack of product. This is simple economics; if you are unable to provide the necessary product to your customers, your competition will. These costs also occur if a customer orders the last of your inventory and that product ends up being defective.
Inventory Mistakes to Avoid In 2023
Underestimating Inventory Management
This seems like an easy one, right? Such an essential part of your business requires your full attention. Inventory management is not just re-ordering new stock but managing multiple locations and employees while studying trends and history to set your business on the correct course.
As you enter the new year, be sure that all the systems and employees that generate inventory reports are gathering the correct information and staying organized.
Managing Inventory After a Project Launch
It is a common mistake to push inventory management until after you launch your business or project. This creates a few problems, notably allowing your inventory to become disorganized from the onset. This disorganization could lead to bottom-line issues on top of the uphill re-organization battle. Structure and proper planning are key to ensuring your inventory management and product are ready for market. Additionally, you will navigate away from easily avoidable inventory issues, saving you money.
Purchasing bulk stock to reduce costs
Just because you can buy in bulk does not mean you should. On the surface, it may seem like you are saving money, but this really depends on your product’s shelf life. Consider any expiration dates your product may have to protect your inventory and bottom line from unsold goods and expired goods.
Understocking to save money
Just as important as not to overstock, understocking also comes with consequences. While on the surface, you are saving money, your company is at risk of not being able to meet customer demand. As previously mentioned, with stockout costs, running out of product forces your customers to flock to your competitors, and any defective products from your company will add additional harm to your bottom line. In other words, short-term gain, long-term loss.
Balance is key regarding the amount of stock needed for your business. Therefore, keeping up with trends and product history is imperative.
Excluding Inventory Management from Forecasting Calculations
Using advanced inventory management software may allow you to forecast your sales with more accuracy. It will also help you maintain the correct amount of stock, determine the proper lead time for restocking, and help you determine why your sales are forecasting the way they are.
Types of Inventory Costs to Track
These costs refer to the tools and employee labor costs in handling your inventory at warehouses. Also included in these costs are the people who manage your inventory and material handling equipment.
In a perfect world, all your inventory would make it to store shelves in perfect condition. We all know this is not the case. If too much of your stock is expiring while in storage, you know that you did not judge the market correctly and overstocked.
Keep diligent records of these losses. This will help you avoid as much spoilage as possible.
Is your business expanding and in need of larger warehouse space and equipment? Then 2023 might be the year to purchase a new building, land, or equipment. It is obvious how crucial tracking these costs are.
Storage space costs include reoccurring warehouse payments such as rent, utilities (heat, for example), security workers, and janitors. These costs ensure that your inventory is safe, organized, and clean. While these costs can be particularly expensive, they are imperative to maintaining a well-run inventory system.
Taxes and Insurance
Tax and insurance laws change depending on the jurisdiction. A competent legal team ensures you are not paying too much or, more importantly, too little.
You cannot get your product onto the shelves if it is not safe. Improperly managing your inventory leaves you exposed to potential criminal activity. While it does not eliminate the threat completely, proper inventory management gives up-to-date insight into your inventory, reducing the risk of theft, fraud, and other potentially costly issues.
New Year’s resolutions are great, but they only benefit you and your company if you stick with them. Regarding your inventory stock management resolutions, stick with your 2023 plan. Follow the tips above and enjoy successful inventory management in the new year.