Growing an inventory-based business can be complicated. From where to store your goods to how to find people to help manage prepping orders, here are the steps you need to manage inventory and successfully scale your small business.
Expanding & Managing Inventory as Your Business Grows
The solution to expanding and managing inventory without significant losses lies in balancing demand versus surplus. An increase in business is a good thing — but running out of a product is not; in fact, stockouts can reduce customer satisfaction and even drive them away. Here’s how to ensure you have adequate inventory for every sales spike.
Determine Product Demand
To make sure you can meet consumer demands, you need to forecast the anticipated market for products. Using historical sales data, you can estimate which items will sell out quickly and which may require longer-term storage. If your goods are perishable, you also must rotate them to avoid spoilage. You can consult historical data to calculate inventory turnover, Webretailer explains, which tells you how quickly you work through your stock. Inventory turnover ratios are also an indicator of how well your business is performing overall.
Phase Out Slow-Moving Inventory
Once you highlight which products are your best-sellers, cut loose the inventory that doesn’t perform well. Providing discounts or hosting exclusive sales can help you unload inventory you no longer want to stock. Further, tracking performance over time ensures you don’t continue restocking products that are costing you more in storage costs than they’re worth in sales.
Set Specific Reorder Points
To avoid running out of products, you need to establish specific reorder points for each item in inventory. Investigate average lead times for past orders from suppliers to figure out when you need to begin reordering. A simple formula for calculating your reorder point is by multiplying the lead time (how long it takes a supplier to deliver your product) by the average daily sales volume, then adding your safety stock level — the reserves you keep as a backup.
Test Inventory with Pre-Order Campaigns
Not sure how much inventory to prepare for a specific product launch? Consider a pre-order campaign with an exclusive deal for those who sign up. This way, you have an accurate estimate of how much inventory you’ll need based on how many consumers take part.
Choose Items with High Profit Margins
Because storing inventory can become pricey, you should avoid stocking excess products with low profit margins. Instead, focus on goods that earn a higher return on your investment. For example, high-value commodities such as jewelry take up little warehouse space but can provide exceptional returns on your investment. In most industries, a profit margin above 10 percent net profit is desirable, Small Business Trends notes. So, look at your top-performing products and aim for higher-value products that require less square footage to store.
Where to Store Extra Inventory
Depending on the industry, utilize one or more types of inventory storage.
Common options include:
- Block stacking
- Shelves and bins
- Point-of-use storage
- Dry storage
- Cold storage
However, the kind of storage you use for managing inventory depends on what facilities you have available. If your products require refrigeration or freezer storage, for example, your options are limited to spaces with walk-in freezers. For shelf-stable products, you have more options.
Climate-Controlled Off-Site Storage
Even if your products won’t melt or otherwise degrade, you still don’t want to store inventory in your garage. One potential solution is renting an off-site storage unit. Climate-controlled storage spaces are an excellent alternative to the temperature fluctuations of your home garage or attic. While you must pay rent, it’s less than the cost of a commercial warehouse. Plus, many storage expenses qualify as tax deductions, whether you use your personal residence or another facility.
Alternatives to On-Site Inventory
Another supply chain fulfillment strategy that is becoming common for e-commerce companies is drop shipping. Dropshipping involves third-party order fulfillment. You manage the storefront, but a third party ships orders when your customer makes a purchase. As the business owner, you don’t need to retain any product — but you do rely on a wholesaler or manufacturer to manage inventory for you. Of course, drop shipping isn’t ideal for every type of small business, even as you outgrow your inventory space.
Smart Warehouse Storage
If a separate business space is essential, you still need to make the most of your warehouse rental. Go vertical where possible, and invest in heavy-duty shelving to avoid product breakage. Consider organizing your products by SKU or arrival date. Tracking products by their arrival into the warehouse ensures that the oldest goods come off the shelves first. Plus, you can store extra inventory on the top shelves and only access it when necessary.
Automation is another excellent way to manage your warehouse storage and organization. Tracking SKUs, scanning outgoing packages, and managing inventory can all happen via a digital interface that reduces the need for skilled staff.
Hiring Extra Employees for Growth
As you scale your inventory-based business, you might find that you’re outgrowing your location. Expanding into a warehouse can provide plenty of storage space and room to grow. However, such expansion means you might need more employees to handle stock.
In fact, experts suggest that in a typical warehouse (not an e-commerce fulfillment center) requires one worker per 1,500 to 3,000 square feet. Even if you can invest in automation techniques, human workers are vital for daily operations. However, finding extra warehouse staff on short notice can be challenging. If you prefer to avoid general staffing agencies, concentrate on companies that specialize in on-demand labor staffing. With expert help, you can find quality laborers with the skills you need, even on short notice.
Tech Upgrades to Help Scale Your Business
Technology is instrumental for many small businesses. As your company grows larger, the need for tech support only grows. Fortunately, you can use your smartphone for many business tasks.
Downloading inventor control apps, for example, like Inventory Now or Shyp, can help you manage product levels and avoid shortages. Any means of automation has the potential to reduce your workload and that of your workers, providing financial and sweat equity benefits.
Of course, when you begin using multiple apps to help manage your business, you’ll need to pay close attention to your data usage. Fortunately, unlimited data plans tend to offer competitive pricing in comparison with month-to-month plans. Investigate your options to determine what the best deal is for your data use.
Scaling your business requires buckling down on your inventory and stocking procedures. However, with the right tools and methods in place, you can avoid inventory miscalculations and keep your company running smoothly.