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How to Optimize Inventory to Increase your Profits


Improving your inventory management is one of the most effective ways to increase your eCommerce sales in 2021. Even if you feel you have a great inventory management system, a few tweaks might enhance your process and income. Managing your inventory would be a breeze if you could predict the date and quantity of your future sales with 100 percent accuracy. The longer you've been in company, the more inventory data you'll have to forecast your sales in 2021. A solid forecast will include your company's growth curve, market trends that may affect your bottom line, client confidence, and your sales and promotions calendar. The unexpected, on the other hand, is something you can always bank on.


What is inventory management?

Inventory management includes all operations that affect your inventory, from initial ordering and refilling through receiving, storing, and using to fulfil requests. The project demands a large amount of data, such as your sales volume and current stock levels. Inventory management has become an integral component of demand predictions and sales estimations as a result of this data collection. Recognizing how well goods sell, keeping the right number of products in stock, precisely and timely executing orders, and carefully limiting expenditures are all aspects of inventory management. Many businesses utilise inventory management software to help them manage the process. This should ideally be a "perpetual" or "continual" inventory management system that tracks the movement of inventory items in real-time and continually updates the accounting system.


A lot of factors contribute to effective inventory management. The following are some inventory management strategies used by CFOs to help decrease losses and increase profitability. The more accurate and important this information is, the better your inventory management systems will be. Simply said, understanding your inventory and how it is managed allows your company to satisfy today's requirements while also developing to meet tomorrow's. Now, let's have a look at the practises that have been chosen to aid you in capitalising on development opportunities.


How to Maintain Proper Stock Levels

Because inventory may account for a significant portion of a company's assets, it is vital to maintain adequate things on hand to fulfil orders while keeping inventory expenses under control. Having enough merchandise on hand guarantees that orders can be met without tying up too much working capital in inventory that may not move for a long period. When selecting how much stock to keep on hand, consider both sales projections and the cost of preserving and maintaining inventory. Inventory left on the shelf for too long without appropriate tracking might potentially lead you to lose money. You can also lose money (and customers) if you don't retain adequate stock of high-demand items on hand to satisfy requests on time.


Category based Analysis

Companies that handle a wide range of items can frequently benefit from a method that divides inventory into three categories based on popularity and the cost of storing them: "A" products are best-sellers with low carrying costs. "B" products sell often but may cost more to maintain in stock. "C" goods are ones that sell slowly yet profitably. An ABC analysis can help a company minimise its working capital expenses by suggesting which commodities need to be reordered often and which can be delivered less frequently. This can help optimise inventory turnover, reduce obsolete inventory, and factor into product pricing and supplier negotiations.


This strategy assists businesses in analysing their profitability and determining which areas require improvement, such as cost reductions or price increases. The investigation may also turn up "D" or "Dead" items that don't sell well enough to justify having them in stock at all. These underperforming goods may need to be sold and phased away. Inventory that is overvalued must be adjusted accordingly. Businesses must carry inventory at the lower of the acquisition cost or the market price.


Have an appropriate amount of stock in place

Many product sales suffer peaks and troughs as a result of external factors such as the time of year, holiday shopping, or special events. Some things may take longer to arrive from suppliers during certain times of the year. Companies must pay attention to these changes, recognise patterns, and adjust their inventory accordingly. A safety stock is a quantity of surplus inventory kept on hand to prepare for surges in demand and supply-chain delays. Without safety stock, a company may find itself unable to fulfil orders on time. This might result in a loss of money as well as customers and market share. However, safety stock should be kept to a minimum and properly monitored, since it might lead to overstocking and capital problems. Long-term sales patterns may assist you in determining whether or not to keep safety stock on hand..


Analysis of products

According to the well-known 80/20 principle, putting in 20% of the labour results in 80% of the rewards. Similarly, just a small percentage of your things make the greatest revenue. As a result, it is vital to analyse your product line on a frequent basis and keep an eye out for trends. The goal should be to change or remove goods with low (or no) profitability while boosting the profitability of the most profitable products. Of course, any market and production constraints must be considered.


Low cost sales strategy- Dropshipping

Drop-shipping is a low-cost sales strategy that allows online businesses to sell things without having to stock them. The wholesaler usually owns, stockpiles, and delivers the product, whilst the retailer decides on the selling price and performs the sales. The merchant sends the orders to the supplier together with the wholesale payment and keeps the difference as profit. The supplier fulfils the order and sends it to the client as though it came from the retailer. This technique has advantages in terms of reduced inventory and shipping expenses, but it also has drawbacks. If the wholesaler fails to provide good service, your company has complete responsibility. Many merchants choose to purchase small quantities of items on a regular basis and keep them in stock as a way to monitor the wholesaler's performance and as a precaution against issues such as the wholesaler running out of stock or shipping defective goods.


Storing consignments

This option allows the wholesaler to store the merchant's merchandise. The retailer is solely paid for items sold. Using just-in-time inventory benefits the store. This item, on the other hand, takes up space in the retailer's warehouse. Furthermore, the retailer is normally in charge of product protection and insurance.


Successful businesses can't afford to have their inventory costs neglected. Inventory management is essential for profit and client retention. Continuous evaluation is required to maintain optimal inventory levels and maximise sales profits. Please contact us if you require assistance in setting up or improving your inventory processes. Preferred CFO will gladly assist.