In the daily struggle manufacturers and distributors face in making sure you have enough product on hand to meet or exceed customer demands, it can be hard to take a step back and look at high-level ways to improve profitability.
Are you in control of your inventory? Or, is your inventory controlling you?
We’ve created these three tips to think about in order to help you take back control of your inventory.
- Develop a Stock List
When you manufacture or order products, the goal is to sell them. But, sometimes sales do not meet expectations. They languish in dark corners of the warehouse collecting dust and cobwebs. To separate the salable items from the items to be liquidated, it helps to develop a stock list.
A stock list is a list of products, annual orders, total quantity ordered annually, and the total annual cost of goods sold. When you begin tracking items in this manner, it’s easy to see at a glance what you should keep more of in your warehouse and what should be liquidated. Keeping the cost of goods handy helps you keep in mind the cost of your investment into the items. If you must put the item on a discount, you can easily calculate the discount using the COGS as the bottom line number below which you cannot drop the price.
- Liquidate What Isn’t Selling
Unfortunately, inventory rarely increases in value. Most inventory decreases in value, and unsold inventory drains valuable capital from your business. It takes up warehouse space, requires inventorying at certain points in the year, and keeps you from stocking more of what sells.
Each business must set parameters for how long to keep items in stock before liquidating them. Some items may be kept even if they do not sell frequently because a valuable customer orders them or because you are the only company where such an item is available. But, for the most part, anything that’s been sitting around for months or years is ready for liquidation.
Liquidating stock doesn’t necessarily mean a sale. You can:
- Transfer items to a holding warehouse until you can figure out how to sell them.
- Recycle parts or materials into new products.
- Return items to the manufacturer.
- Use unsold goods as a marketing tactic; add them onto other product sales as a free gift with purchase or freebie to please your customers.
- Offer your sales team an incentive to sell the backstock.
When all else fails, you have two choices: drop the price to get rid of excess inventory or donate it somewhere. While selling below COGS isn’t ideal, if you must do so in order to get rid of inventory that’s taking up floor space for more profitable goods, it may be the right move. Some specialized materials cannot be donated to a nonprofit, but many industries can find a willing charity to take their backstock. Building materials can be donated to places like Habitat for Humanity; food can be donated to food pantries, and other creative solutions exist for many goods.
- Organize Stock According to Frequent Sellers
Once you have a stock list, you can do quite a lot with it. For example, you can use it to reorganize your warehouse so that frequently requested items can be located closer to the shipping center. By relocating popular items closer to the packaging and shipping center, you minimize the time it takes to pick and transport them.
Contact ASI for More Ideas to Improve Inventory Control
If you would like more ideas to improve your inventory management, contact ASI. We can review your processes and offer suggestions for business systems that will help you take back control of your inventory.