Whether you are running a traditional brick-and-mortar store or are an active online retailer, inventory management is a crucial part of the business. Maintaining the right inventory is very important to supply as per the demand of the customers. However, holding up more inventory than required can cause major costs. As per Ecommerce Bookkeeping Expert, it is very important that the physical inventory that you have matches with the inventory entries in the books. This is where effective inventory management plays a crucial role.
What is inventory management?
Inventory management is a strategic approach towards keeping a close monitor of the physical inventory available with the eCommerce businesses. The approach includes monitoring the weight, dimensions, amounts, and location of the inventory. The core aim of inventory management is to prevent holding up more inventory than required and save costs. The right inventory management practice helps businesses know the right time to replenish the products or buy new raw materials to manufacture items they sell. When you have the best eCommerce Accountant for Shopify to help you with your books, inventory management becomes very easy.
The best approaches for Shopify inventory management
The best part about inventory management is that it is a customizable aspect of the business. There are several approaches to Shopify inventory management and one must be chosen as per the business needs and nature.
Set Par Levels: In this approach, par levels are set for each product. Par level is the minimum number/ amount of items that must be in your inventory at all times. When the inventory reaches below par level, it is time to reorder.
First In, First out (FIFO): Under this approach, the oldest stock, which has first entered in the inventory must be sold first. This approach is best when you deal in perishable products.
Manage relationships: Maintaining strong relationships with the suppliers is the key to effective inventory management in this approach.
Contingency planning: Know the business risks and stay prepared to tackle them. You must be prepared at all times to deal with the problems that come your way.
Auditing: Frequent auditing keeps you prepared and informed for the next order, decreasing product levels and quality. You must get active with physical inventory, spot-checking, and cycle counting.
ABC prioritization: Categories your stock under A, B & C categories. A category has stock that makes 80% of the revenue, B products make 15% of the revenue and C products make 5% of the revenue.
Last in, First out (LIFO): This is the exact opposite approach of FIFO. In this approach, the newest items added to the stock are sold first to maintain profitability.
Just In Time: This approach is for risk takers as here orders are made just when the inventory level is almost zero. This saves the businesses from the cost of warehousing and wastage.
Whatever approach you choose, consulting with an Ecommerce Bookkeeping Expert is important to ensure that the business goes into profit.