If you’re planning to open a manufacturing, wholesale or retail business, you’ll be likely be carrying inventory. Even pure service businesses carry some “inventory,” more appropriately called “supplies” – like report covers for client materials, high quality report paper, photographic paper and so on. These items are not inventory in the strictest accounting sense, but you still need to manage on-hand quantities to make sure you can conduct your business activities without having to constantly run out to replenish your stock.
How much inventory should you keep on hand?
To help reduce costs and improve profitability, many small businesses carry the minimum amount of inventory necessary to run their business, instead of carrying large amounts. Purchasing inventory more frequently also helps them to remain competitive. Of course, some inventory must be carried all the time – the trick is to know what items should always be on hand and in what quantities. It’s hard to estimate this until your business has operating history, so keep good records of what you tend to buy most often over the first few weeks. Carrying only the inventory you need, when you need it, is known as “just-in-time inventory.”
Tips for successful small business inventory management
The goal of just-in-time inventory is to eliminate waste. Customer demand determines how much product gets produced, the number of products to be produced determines production capacity, and production capacity determines the amount of raw materials you need to purchase. For just-in-time inventory management to work, there need to be severe penalties for members of the channel who don’t meet their obligations (such as late deliveries), and there must be good communication between members of the channel – customers, retailers, wholesalers, and manufacturers.
Avoiding carrying inventory is a trend in business that’s expected to continue for many years. Proper efficient inventory management is one of the operation process skills that you’ll need to develop quickly in order to stay competitive.
Do you have any inventory management tips to share?
When we talk about operations management in a small business, we’re talking about a lot of moving parts. So what is operations management? It refers to all the activities, processes and controls a small business uses to produce its products and services. The components of operations management include: