Stocks, variously called inventory, products or merchandise, often take a large chunk of your business capital.
This is because you need to have stocks for potential customers to come in to your shop to buy.
Without stocks you cannot be said to be in business.
Because of it’s importance, you need to put in place an effective internal control mechanism to secure your investment in stocks.
This article is, therefore, focusing on some actionable steps you can take to ensure that your business is successful.
Get rid of stocks nearing expiry dates
Expired products or those nearing expiry dates are potential sources of financial losses to your business.
You know as much as I know that when products expire, they loose their efficacy.
When this happens, nobody will be willing to put his money in them.
The next thing is that you will have to discard or throw them away. That is a painful decision to make in business.
Typically, food, drugs and cosmetics are the greatest culprits.
Moving forward, in other to minimize the impacts of expired products on your business, you can try the following tips:
- Monitor, examine and track expiry dates of all products in your shop.
- Ensure that you reshuffle and relocate products regularly in your shop.
- Do not allow products to remain in location in your shop for too long.
- Those nearing expiry dates should be brought to the exit point of your shop
- You can get rid of such stocks, doing promotion.
- Their selling prices can even be discounted to get them off the shelves
How to manage stocks: Avoid obsolete stocks
Obsolete stocks are items that are no longer in demand because they:
- Have gone out of fashion
- Are no longer relevant
- Technology has overtaken their usefulness.
Clearly, obsolete stocks are obvious sources of losses.
Consequently, you need to nose around to know what:
- Close substitute products are coming on board to replace existing one
- Products are experiencing low demands
- Find out why their demands are declining
- Whether the manufacturer has ceased production of the products
It is not enough for you to buy products, keep them in the warehouse without you monitoring things that are happening around the products in the market.
Furthermore, you can even identify from your computer system or bin cards some of the stocks that appear to be experiencing low demands.
As part of your stocks management strategy, you need to constantly study your market, customers and competition so that you will not be caught unaware.
You need to make sure that your stocks are stored in places where they will not be affected by excessive heat.
Excessive heat can change the color of the products, thereby making customers to ask for reduction from your selling prices.
Discolored packs put customers off.
Therefore, it is your responsibility to ensure that your stocks are coming out looking fresh when you present them to customers.
How to manage stocks to improve cash flow
Effective inventory management can improve your cash flow.
For example, if you lock up a large part of your business capital in stocks that are not selling, it can negatively impact your ability to pay creditors and other bills as they fall due.
Remember, stocks are merchandise you have paid for and which you want to sell for cash.
So if you cannot sell them out at rapidly, your stock turnover will be low and so will your profits.
If customers are not coming to buy from you regularly, you will not have cash in hand to replenish stocks when they get low.
Stocks Economic re-order level
Another strategy to manage stocks in your business is to set stock buffer level for each category of your products.
Buffer stock levels are the minimum quantity of stocks that must always be available in the shop at any given time.
Additionally, you can use the EOQ model for stocks control.
EOQ simply means Economic Re-order Quantity. When your stock touches this level, then it is time for you to place order for supplies.
Economic Re-order Quantity are calculated using quantitative methods to determine how quickly any given product sells and how long it will take to get new supplies.
Setting stock levels require some research and decision-making up front.
It has some benefits, including:
- quick replenishment of stocks
- easier decisions quickly
- employee can make decisions depending on the authority you have given to them.
After setting these benchmarks, you still need to constantly go through the models to know if the assumption you used in their calculation are still valid or sustainable.
Most importantly, if changes becomes unavoidable, you should not be scared to go ahead with the changes, provided they are in the best interest of your business.
How to manage stocks: First-In First-Out (FIFO)
“First in, first out” is an important principle of stocks management strategy.
FIFO principle simply means that you should sell your older stocks first before you sell the ones you bought lately.
In particular, it is very helpful if you are selling easily perishable products.
It can also be used for slow selling stocks that remain dust ridden at the rear of your store.
Plus, packaging designs and features often change over time. You do not want to end up with obsolete stocks that you cannot sell.
Effectively manage relationships with suppliers
You should be able to manage relationships effectively with your suppliers.
Moreover, having a good relationship with your products suppliers is very crucial to the success of your business.
This is because you can call on your suppliers to bring you stocks even when you have not paid.
It will help you to ensure that you do not have frequent stock outs. Stock outs put customers off.
It is also about being clear in your communications with your team and business partners.
For example, you need to let your supplier know when you are expecting an increase in sales so that they can adjust production.
Most importantly, let them know when a product is running behind schedule so that you can slow down sales promotion or look for alternative products you can fall back on.
How to manage stocks: Contingency plans
Contingency planning is one of the smart ways to manage stocks in your business.
For examples, proper planning, implementation and monitoring can help you to know:
- When there will be unexpected rise in demand for your products
- To manage your cash flow so that you do not run short of cash you need to pay products you desperately need
- To look for a warehouse that can exactly accommodate your products.
- How to ensure that you have optimal stocks
- Avoid a situation where slow moving products take up all your storage space
- How to cope with a manufacturer that has discontinued your product without warning
More importantly, in business, it is not a matter of “if problems will arise, but it is when”.
Most importantly, you need to figure out where your risks are and prepare a contingency plan:
- How will you react? What steps will you take to solve the problem?
- How will this impact on other parts of your business?
In all circumstances, effective and strategic plans go a long way to ensure that you keep your business on track.
Regular stock counts
In stocks management, regular internal checks counts are very crucial to the success of your business.
Because of the space stocks occupies in your business, it is very important that you maintain stock records on computer software.
Thereafter, you can reconcile your counts with what the computer shows.
This will make it easy, quick and cost-effective to track your stocks seamlessly.
The business world is going digital so you cannot afford to continue to run your business on analogue system.
How to manage stocks: Accurate forecasting
You need to be able to predict stock items your customer are likely to need.
In other words, you should be able to predict customers’ demand.
Although it is not easy to predict accurately, but you can get close.
Here are a few factors you can consider when projecting your future sales:
- Trends in the market now
- Last year’s sales during the same week
- This year’s growth rate
- Guaranteed sales from contracts and subscriptions
- Seasonality and the overall economy
- Upcoming promotions
- Planned ad spend
If there is anything else that can help you create a more accurate forecast, be sure to include it.
Take control of your stocks
An internal audit system is a great way to ensure that your stock items are not going into wrong hands.
Internal audit system can help you to:
- help reduce costs,
- keep your business profitable,
- analyze sales patterns and predict future sales,
- and prepare the business for the unexpected.
With proper inventory management system in place, your business can stand a better chance of making profits.
Many businesses have lost tons of cash due to poor internal control system.
You do not need to be one of them.
Therefore, it is time to take control of your inventory management and stop losing money.
Choose the right stock management techniques for your business, and start implementing them today.