Overstocking and understocking inventory can create major challenges, especially financially. Businesses should strive to perfect inventory management and forecasting to ensure they stock just the right amount of inventory during all seasons. Hitting the right amount of inventory can even out carrying costs of inventory and make it more manageable. Read on as we explore 7 tips for understanding how much inventory you should carry.

7 Tips for understanding how much inventory you should carry

It’s important for any type of business to understand how much inventory they should carry at any given time. If you have too much inventory on hand, then you may be tying up too much capital in inventory and paying for more warehouse storage than you should. If you do not have enough inventory on hand, then you may be losing out on sales, back ordering items, and developing a bad reputation by giving customers a poor experience.

The ideal situation is to find the perfect stock number for each product that your business offers that considers lead times, customer demand, and all the other factors needed to make accurate inventory demand forecasts. By having accurate inventory demand forecasts, your business can save an incredible amount of time and resources and even automate some processes like purchasing. 

All of this is more easily said than done. And, as a small business owner, you may not have the resources to hire your own supply management team to make these types of inventory-related decisions for you and the benefit of your company. Until you can hire your own in-house supply chain manager, here are seven solid tips to consider to help you understand how much inventory you should carry as a small business owner. 

1. Create an inventory management system

If you’re  a small business owner that needs to maintain a desired level of inventory at all times, the first thing you should  do is to create an inventory management system and invest in various hardware and software as part of that system. 

An effective inventory management system will help you track sales and identify patterns in demand that can help you make purchasing decisions. Inventory needs to be tracked consistently and stock levels need to be adjusted every time a product ships out, is received, or is returned by a customer. 

Once you start to factor in individual lead times and safety stock figures for each of your vendors and their products, then you can start to automate purchasing and other processes within the inventory management system and your overall supply chain. Automation is an incredibly effective way of saving time and resources. 

2. Adjust accordingly for your industry

Your industry and the types of products you sell have a lot to do with how much inventory you should have on hand as well as when you should have more or less of a particular product. The first question you need to ask yourself is does your product expire or has a shelf life. If it does, then your inventory management system needs to take that into account by looking at inventory levels on a daily basis and making purchases based on lead times as well as shelf life times.

If your product does not have a shelf life, inventory management may be a little less complex, however, you still need to adjust accordingly for your industry. 

For example, if you sell winter coats, you may have some seasonality to consider. Seasonality not only applies to winter coats being in high demand during the colder months, but you may also need to consider having extra stock for back-to-school sales, Christmas and the holiday shopping season, spring jackets for the rainy season, and other special promotions you may want to offer. Aside from seasonal demand and special promotions, you will also need to make sure you have plenty of stock for the most common sizes for men, women, and children. Some sizes are going to be much more in demand than others. 

3. Determine inventory and storage cost

One of the most important factors when it comes to inventory levels is the cost. Cost needs to be more than just unit cost. Expenses associated with inventory storage should be considered as well. If you have a large amount of inventory simply sitting in warehouses for long periods of time, it can add up. This is why having an effective inventory management system and accurate inventory demand forecasts are so important for your business.

Aside from the cost per unit and storage expenses, you also need to consider costs associated with inventory disposal if your products have an expiration date. Obviously, the goal is to limit waste as much as possible by selling products before expiration, however, some waste may be inevitable. That being said, the costs associated with this should be factored into your bottom line and purchasing decisions as well. 

4. Know and calculate your inventory turnover ratio

Your inventory ratio is essentially how many times you sold and replaced specific products within a set period of time. Certain industries have different inventory turnover ratios based on the nature of the products they sell, however, a desirable turnover ratio for any business may fall between 4 and 12 over the course of a year. 

5. Know your supplier lead time

Another important factor to consider when making inventory management and purchasing decisions is supplier lead time. Supplier lead time refers to the time it takes for a product to be received from when the purchase order is created to when it is available to ship out to customers. This is important to know for each supplier and for every product that your business offers. 

6. Maintain safety stock

Safety stock is an amount of inventory that acts as a buffer to account for fluctuations in demand and uncertainties like excess demand, supplier delays, inaccurate inventory demand forecasts, delayed purchasing, and financial constraints. By knowing what your safety stock levels are for each product that you sell, you can help to achieve zero order cancellations from simply having not enough inventory to meet demand.

Canceling orders or having to backorder items for customers is a bad business practice that will have customers looking elsewhere for their purchases. Chances are if a customer makes an order on your site and you cancel it due to the item being out of stock, they will find another source and never return to your business again. 

7. Identify and correct inventory management issues

It’s one thing to have an inventory management system in place, however, you also need to be proactive when it comes to addressing issues that come up. For example, if you notice you are always running out of a particular item you may want to investigate to see what the core issue is. Maybe there is a supplier who is behind on production? Or maybe some of the product is arriving damaged and in unsellable condition? These are the types of things you should be proactively investigating to solve issues in your inventory management system

Also, if you find that you have too much inventory of some particular items because of an inaccurate inventory demand forecast, you may need to experiment with different ways to liquidate the inventory. You may need to offer special discounts on certain products or donate some product to charity as a tax write-off to flush out items that are taking up precious storage space and tying up working capital. 

How Kickfurther can help

Oftentimes we try to take shortcuts as a way to overcome challenges. For example, maybe you’ve decided to only stock the amount of inventory you can afford. While this is smart, it may be costing you sales which translates to profits. Finances often get in the way of inventory management, but they don’t have to. Created by an entrepreneur just like you, Kickfurther is committed to providing affordable inventory funding solutions for small business owners. 

Kickfurther is the world’s first online inventory funding platform that enables small businesses to access funds that they are unable to acquire through traditional sources. For companies that sell physical products or non-perishable consumables and have revenue between $150k to $15mm over the last 12 months, Kickfurther can help. We connect brands to a community of backers who help fund inventory on consignment and give brands flexibility to pay that back as they receive cash from sales. 

Kickfurther can help startups and small businesses fund millions of dollars of inventory at costs up to 30% lower cost than the competition. With more than $100 million in inventory funded to date, Kickfurther can help you get funded within a day or even minutes to hours. 

Interested in getting funded at Kickfurther? Here are 3 easy steps to get started:

#1. Create a free business account

#2. Complete the online application 

#3. Review a potential deal with one of our account reps & get funded in minutes

Product-based businesses and retailers deal with a unique set of challenges when it comes to inventory management and control. Without the proper solutions to solve and prevent these issues, your business may unnecessarily miss out on revenue and decrease your total profit. Inventory issues also decrease customer satisfaction and lead to poor customer retention.

Keep reading to learn more about the best practices and tips used throughout the industry to handle any inventory problems that may arise.

Best Tips & Steps to Solve your Inventory Problems

Solving inventory problems can be complex. Oftentimes the cause of the problem is not obvious. As a business owner or manager, you’ll need to fact find until you have enough information to come up with a creative solution. Here are some tips and steps to help identify and solve inventory problems.

• Identify the main problem area: If you don’t know what’s wrong, you can’t fix it. Therefore, the first step to solving your inventory problems is to identify what your inventory management pain points are. This can be accomplished through proper communication and collaboration between departments, proper data and analytics, and inventory audits. Some of the issues you may encounter include frequent inventory shortages, overstocking, and inaccurate inventory counts. Possible causes include faulty demand forecasting, failure to plan or account for seasonal changes, poor communication, lack of automation, supply chain issues, changes in current market conditions or trends, vendor failures, poor ordering strategies, and poor production planning.
  

• Eliminate dead stock: Dead stock is any inventory that can no longer be sold, is out of season, or is otherwise irrelevant. Dead stock can be hard to get rid of, and so should be avoided at all costs. When a product becomes obsolete, you miss out on the opportunity to convert that asset back into cash. With the proper inventory management systems in place, you can reduce your chances of finding yourself with dead stock. In the event that you do have excess inventory that needs to go, your options include selling to customers at a discount, trading with other companies for different products, bundling your unwanted inventory as a package with other in-demand items, or selling in bulk at a discounted price in a liquidation sale.
  

• Save money on storage: Warehousing and storage can be one of the largest expenses of a retail or product-based business. This cost can be variable depending on your current inventory levels and storage needs. Consider switching warehousing vendors, eliminating some of your warehouse locations, liquidating dead stock, and cutting down on poor-performing product lines. Likewise, overstocking and overproduction should be avoided at all costs.
  

• Perform regular audits: There are a few different methods of audits including physical inventory counts, spot checking, and cycle counting. A physical inventory audit consists of manually counting your entire inventory at the end of each fiscal or calendar year. While this is the most comprehensive method of performing an inventory check, it’s also the most time-consuming. Spot checking involves manually counting all of the available inventory from one particular product or product line and comparing it against the current numbers in your system. Many companies prioritize top-performing products or products that are flagged as being counted incorrectly. The final method of cycle counting involves spreading out your physical inventory audit throughout the year. For example, each month you may check a different product line on a rotating schedule. This solution is ideal for larger companies with multiple warehouses and product types.
  

• Create an auditing strategy: With the right auditing strategy to address the issue, your business can overcome any inventory-related challenge. All of your business decisions should be data-driven, and the information obtained from your audits should be kept updated through the right kind of software or inventory management technology. Regular auditing and reporting can help your company both avoid and manage recurring inventory management problems.
  

• Incorporate automation: The addition of automation into your inventory management is perhaps the single best thing you can do to increase the success of your business. If you’re still relying on paperwork, Excel charts, and other outdated inventory control systems, it’s time to consider updating your processes with the latest technology. Automation eliminates the possibility of human error, saves your company both time and money, and helps identify key problem areas with your inventory. The most common types of automated inventory systems include enterprise resource planning solutions (ERP) and warehouse management systems (WMS). These systems use barcode tracking technology to increase visibility into your inventory with accurate real-time data.
  

• Incorporate analytics: Analytics is a key component of any successful inventory management strategy. Having access to the right data allows everyone from your Purchasing Manager to your Warehouse Manager to make informed decisions.
  

• Invest in software: The right software should allow your employees to access real-time inventory data from anywhere in the world, increasing visibility into your product stock and eliminating the need for manual processes. The right software can save you money and increase your efficiency. As a retail business with multiple product lines to manage, you can’t go wrong with an investment into some quality software.
  

• Invest in your workforce:  Likewise, you can never go wrong with investing into the ongoing training and education of your employees. Poorly trained employees can increase the chances of experiencing inventory problems, while a skilled staff can help eliminate and even prevent them. If you don’t yet have the resources to manage your inventory storage and order fulfillment in-house, third party logistics providers can bring the level of expertise you need in order to succeed. No matter which method you use, all workers involved in inventory management and control should be up to date with current industry knowledge and trends.

Incorporating these tips into your business operations and taking inventory management best practices into account will go a long way towards the future success of your company.

How Kickfurther can help

As we try to leverage our business, we may fall short on resources in the beginning. Inventory problems often arise as a result of a lack of technology or manpower. Product-based businesses often struggle with cash flow since the inventory ties up a lot of cash. Therefore, other areas of the business are left struggling until the company becomes successful enough to afford more resources. While some businesses may be able to push through to get to a breaking point, most companies will experience failure taking this approach. In order to grow your business and run it properly, you’ll likely need various types of financing. The challenge with financing is that it’s often expensive and hard to qualify for, especially for small businesses. 

For your inventory needs, Kickfurther can help deliver affordable inventory funding. Kickfurther is the world’s first online funding platform that enables companies access to funds they are unable to acquire through traditional sources.

For companies that sell physical products or non-perishable consumables and have revenue between $150k to $15mm over the last 12 months, Kickfurther can help. We connect brands to a community of backers who help fund inventory on consignment and give brands flexibility to pay that back as they receive cash from sales. 

Kickfurther can help startups fund millions of dollars of inventory at costs up to 30% cheaper than the competition. With more than $100 million in inventory funded to date, Kickfurther can help you get funded within a day or even minutes to hours.

Conclusion

The effective management of your product inventory is crucial to your business success and profitability. While there are many problems with inventory management that can arise, there are also many steps that companies can take to prevent these issues.

The use of affordable inventory funding through Kickfurther in combination with the right analytics, proper strategy, regular audits, and the incorporation of automation can help your retail or product-based business solve any inventory-related problems.

Interested in getting funded at Kickfurther? Create a free business account today to get started!

Inventory shortages (or stockouts) can result in lost revenue, backorders, shipping delays, longer lead times, increased shipping costs, decreased customer satisfaction, and poor customer retention. As a retailer, you’ll go to any length to avoid inventory shortages. However, if shortages are due to working capital restrictions, you may be unsure of how to resolve the issue. Keep reading as we uncover everything you need to know about inventory shortages and how to avoid them. 

Most common causes of inventory shortages

While the consequences of inventory shortages are many, the most common causes of stockouts are basic and few. 

• Lack of inventory: The most obvious cause of inventory shortages is a lack of inventory. Failure to plan ahead and account for seasonal changes, industry trends, consumer demand, and current market conditions will likely result in inventory shortages and stockouts every time. Retail businesses should use what is known as demand forecasting to prevent this issue and keep up with the demand for inventory. There’s also the possibility that your supplier just can’t keep up. If this is the case, choose a different supplier or put customers on an ordering basis. Just make sure if you’re taking orders that your products are worth waiting for.

• Working capital issues:  If your business is regularly experiencing a lack of cash flow, it may be difficult for your company to order enough products to keep up with consumer demand and maintain adequate stock levels. Frequent, small orders that keep your fulfillment team struggling to catch up are not as cost-effective or efficient as larger purchases made with proper demand forecasting. Inventory financing and other forms of business financing can fix this problem. In an effort to access more working capital while keeping costs down, take advantage of Kickfurther for inventory funding. We’ll explore this option in more detail later on.

• Inaccurate data: Whether you haven’t updated your inventory management system to the 21st century or you are encountering frequent lost and damaged goods, the wrong inventory count can lead to inventory shortages. Regular audits as well as automation software can help prevent stockouts caused by poor data.

Tips for retailers experiencing inventory shortages

Retailers experiencing frequent inventory shortages (and other inventory control problems) should consider the following tips to improve their inventory management.

• Perform inventory optimization: Inventory optimization is a method of best practices to balance inventory demand with cash flow in order to maintain proper stock levels and meet consumer demand. Inventory optimization takes current market conditions and trends into account along with historical data to calculate a demand forecast. AI demand forecasting is increasing in popularity.

• Supplier segmentation: Companies must remain flexible and responsive in order to stay competitive, keep up with market conditions and industry trends, and ensure that products remain in stock and available for purchase. Supply chain issues can cause many inventory management issues including stockouts. Supplier segmentation helps reduce this risk and increases your company’s efficiency. The key idea behind supplier segmentation is that vendors who are vital to your organization require a higher level of engagement and resources to adequately manage. Increase the value of your supply chain by defining your strategic relationships with vendors and segmenting them dynamically. Through this process, your company can gain valuable insights into your supply chain, gain a better understanding of supply and demand, and plan ahead for seasonal fluctuations in product demand. Likewise, diversification of these vendor partnerships is crucial. You never want all of your reliance to be upon one company or supplier, especially when it comes to your best-selling product lines.

• Speed up your replenishment capabilities: There are a number of ways that your product-based business can increase its ability to keep shelves restocked. You may need to be flexible with your preferred vendor and consider ordering from other suppliers when necessary. You may need to take out inventory financing or another form of business financing in order to have the cash flow needed to keep up with consumer demand. Companies should regularly evaluate their current third-party logistics provider (if applicable) and compare them against other providers to get the best lead times and shipping times. Regular physical audits and data-driven demand forecasts are an important part of the replenishment process. Making sure that you are placing seasonal orders and other orders in plenty of time to meet consumer demand is another great way to ensure your products remain on the shelf. No matter how you accomplish it, replenishment optimization is key to increasing customer satisfaction and avoiding the costly issues that come with stockouts.

• Implement training with employees on stocking: A properly trained team will help prevent inventory management issues every time. Afterall, they are on the ground at all times, and you may not be. Encouraging communication and new ways of doing things can help solve problems and improve inventory systems. Furthermore, make sure your employees have the resources they need to keep up with inventory. As a business owner or manager you should stop and talk to employees as often as time allows. A quick “how’s it going” can teach you more than a one-hour training or meeting. It’s amazing what you’ll find out just in passing. If you choose to hire a third-party logistics company or other provider, be sure they have the expertise and industry knowledge you need in order to succeed.

• Send out proper allocations: For companies with physical retail locations, ensuring that you have the proper allocations for each store is crucial. Utilizing key data about your inventory and creating an allocation optimization strategy will help ensure that you send the right amount of product to the right stores. Demand may change per store so make sure you understand the market for each location. Allocations will not be the same at every store.

• Provide transparency to customers: Many online retailers have found great success with keeping customers updated via real-time visibility into product inventory. Receiving a “low stock” alert or seeing a low number of products left in stock on the product page helps incentivize customers to go ahead and place that order. Letting your customers know when the product will be back in stock is another great benefit of transparent inventory management systems. Another key strategy is to showcase similar options to consumers whenever you have to turn away potential orders due to stockouts. All of these methods help reduce the drop in customer satisfaction when their favorite items are out of stock.

How Kickfurther can help

Funds for inventory can force unwanted inventory shortages. The reality is that inventory ties up a lot of cash and as you try to grow, this may cause challenges. To overcome this challenge, small businesses often obtain inventory loans and funding. Inventory funding comes with its own set of challenges from the cost to qualification requirements. 

An entrepreneur that once struggled to find affordable inventory financing for his small business, did what entrepreneurs do best – solve problems. It was after countless no’s and high financing costs that he created Kickfurther. 

Kickfurther is the world’s first online inventory funding platform that enables small businesses to access funds that they are unable to acquire through traditional sources. For companies that sell physical products or non-perishable consumables and have revenue between $150k to $15mm over the last 12 months, Kickfurther can help. We connect brands to a community of backers who help fund inventory on consignment and give brands flexibility to pay that back as they receive cash from sales. 

Kickfurther can help startups and small businesses fund millions of dollars of inventory at costs up to 30% lower cost than the competition. With more than $100 million in inventory funded to date, Kickfurther can help you get funded within a day or even minutes to hours. 

Interested in getting funded at Kickfurther? Here are 3 easy steps to get started:

#1. Create a free business account

#2. Complete the online application 

#3. Review a potential deal with one of our account reps & get funded in minutes