Effective inventory management can affect multiple aspects of your business. They can include storage or warehouse costs, fulfilling orders on time, meeting customer demand, faster shipping times, and more.  Making an inventory management mistake could affect your business for several months or maybe even years. In many cases, it takes a while for inventory management mistakes to be identified. The faster you can catch or all together avoid inventory mistakes, the better. Below we have created a guide on the top 10 mistakes to avoid when ordering inventory. Read them carefully and keep them in mind when ordering and managing inventory for your business.

Top 10 Mistakes To Avoid When Ordering Inventory

#1.  Manage inventory manually

Whether your business is just getting started or is well-established, you should use an ERP (Enterprise Resource Management) or automatic calculation in Excel. ERP systems gather and organize business data using integrated software. ERP systems may be more expensive to establish so you may need to start with an automatic calculation in Excel. In fact, this should be one of the first things you do. Companies often fear that they will miss something if they do not control inventory manually or they lack trust in an automated system. This is where the mistake begins. Different personality types can result in different ordering behavior. For example, a conservative individual may not order enough inventory. Manual orders are usually based more on intuition and emotions rather than an actual analysis.

#2. Complicated storage arrangements

Storage should be considered when ordering inventory. You’ll want to order an appropriate amount of inventory for the space and demand. So what do you do when you need more storage space? Rather than getting multiple storage locations, you should invest in one or a few warehouses, depending on the size of your company. The more storage locations you have for the same product, the more complicated inventory management becomes. This can lead to mistakes when ordering new inventory. If the same product is in one place you can have a display of the total stock. Having too much space in your warehouse can also lead to mistakes. Too much space can result in less careful inventory placement. Some of the most successful companies are known for having no extra space in their stock rooms.

#3. Too many products

Similar to having too many product variations, having too many products can also cause mistakes. If you are in charge of ordering inventory you should analyze sales to keep a pulse on what sells the best. Some may believe that more products result in more sales. While this may be true, more products also means more work and more investment. Buyers should focus on the core products that consistently sell the best. Some trendy products may spike in sales. When this happens you’ll want to keep up with demand but avoid over ordering. Trends and markets can change quickly. Therefore, sales and inventory should be analyzed on a regular basis.

#4. Limit product variations

If you are purchasing inventory, you should limit product variations. Having similar products with different SKUs can create confusion and cause mistakes. Typically the mistakes happen during inventory counting. It can also confuse customers. If customers see products that look the same and function practically the same, they usually think they are the same thing. To avoid this problem you should order from fewer vendors. Taking more time while doing inventory to check SKUs can also help avoid mistakes.

#5. Work far from inventory storage facility or warehouses

This mistake is similar to #2 in the sense that they are both focused on efficiency. If you are ordering inventory, you may want to do a physical check. If you have to drive far to do a physical inventory check, this can be a problem. In addition, if you are not close to your inventory, you may miss mistakes that are occurring. While Excel spreadsheets and ERP systems are important, they do not replace the visual aspect. Some of the most successful companies in the world work right beside their inventory. Some even work in the middle of their stock. Visually seeing your inventory can connect you to reality and help you manage stock while improving inventory ordering.

#6. Cutting costs with slower processing times

Some companies may try to multitask employees and cut costs. They may consider shipping less frequently or ordering inventory less frequently to reduce costs. However, this is usually a mistake. Having a consistent ordering schedule and individuals dedicated to managing it, is important. In addition, getting customers products as fast as possible creates brand loyalty.

#7. Not taking inventory on a regular basis

Not taking inventory frequently enough or on a regular basis is a big mistake. Having a proper inventory count is critical in order to order the right products and amounts. Most companies have to take inventory after hours which can be a challenge. In addition, some companies are open 24-hours. You should find an inventory system that works for your company. Some companies take mini inventory counts each day, week, or month. Mini inventory counts take less time but can still provide the information you need. However, you should still take full inventory on a regular basis in addition to more frequent mini inventories.

#8. Hiring unqualified applicants

Companies are always looking for ways to lower costs. While you may be able to find a cheaper person to do the job, this may not be the best decision. Especially when it comes to inventory. If you don’t have the right inventory or the right amount of inventory your sales will be affected. To avoid mistakes when ordering inventory you should make sure you hire a qualified individual. Hiring a less experienced person may be cheaper but it will likely cost you more in the long run.

#9. Failure to identify demand trends

Failure to identify demand trends can cause mistakes when ordering inventory. Businesses can cut inventory waste by properly identifying demand trends. If you fail to identify demand trends you can end up with unsold stock occupying space and funds that could have been used for inventory that would sell quickly. Companies should try to identify demand trends before competitors. This allows them to be prepared and order in demand products in the appropriate quantities.

#10. Improper management

Structure and management are critical when it comes to inventory management, hence to the name. Companies should have a structured process in place for taking and ordering inventory. In addition, only one or two people should be in charge of inventory. Having too many individuals in charge can lead to mistakes.

How Kickfurther Helps Small Business For Their Inventory Needs

Kickfurther can help FBA sellers secure inventory funding. We are the world’s first online inventory financing platform that enables companies to access funds they usually cannot acquire through traditional sources. We connect brands to a community of eager buyers who help fund the inventory on consignment and give brands the flexibility to pay that back as they receive cash from their sales. This alleviates the cash-flow pinch that lenders can cause without customized repayment schedules allowing your brand to scale quickly without impeding your ability to maintain inventory.

Key Takeaway

In conclusion, effective inventory management is critical for a business to thrive. If you can avoid making mistakes when ordering inventory, you can save the business money. In some cases, mistakes are unavoidable. Humans cannot be perfect in every way. If you do make a mistake, be sure to recognize it and use it as a learning experience. If you need inventory financing you should apply through Kickfurther. Kickfurther was originally launched in 2014 by Sean De Clerq who, just like you, was looking for an efficient inventory financing solution. He launched Kickfurther with the intention of helping other entrepreneurs and business owners find affordable inventory financing.

One of the most difficult things to manage when running a small business is inventory. Whether you’re a startup or an established company, keeping tabs on your inventory requires a substantial amount of time and effort. Without putting in the work, inventory issues can contribute to losses, missed sales opportunities, and even bankruptcy. But with research and a bit of financial literacy, you can ensure that your supply chain is well-oiled and properly handled. After all, efficient inventory management does not magically happen overnight.

Is inventory financing right for your business?

Inventory financing is a type of asset-based lending that enables businesses to leverage their inventory to be able to obtain a business loan. Usually, businesses that experience poor cash flow apply for inventory financing loans to cover their inventory needs. Keep in mind that poor cash flow can stem from a plethora of different issues such as unsold stock, late payments, and – at times – unmanageable growth.

If you ever find yourself unable to restock your inventory, then it might be time to consider applying for an inventory financing loan. But how does it work exactly?

How does inventory financing work?

When it comes to inventory financing, businesses can either apply for a short-term loan or a line of credit. Just like any other business loan, your bank or lender will determine the terms of your loan depending on your business’ overall creditworthiness and the value of your goods. However, note that you will not get the full appraised value of your inventory in the form of a loan. Your lender will only finance up to 50% to 80% of your inventory’s appraised value.

For instance, if the appraised value of your asset is worth $100,000, chances are you would be eligible to borrow a loan amount of at least $50,000.

Types of inventory financing

There are two main types of inventory financing: an inventory loan and an inventory line of credit.

Inventory loans

An inventory loan comes in the form of an upfront lump sum payout that businesses can use to purchase additional inventory. This type of inventory lending solution has a fixed interest rate that the borrower must repay over a set repayment period. Inventory loans typically have a repayment term that ranges from a few months to a couple of years. Since inventory loans are considered short-term business loans, borrowers should expect larger monthly payments.

Inventory lines of credit

Another inventory financing loan that borrowers can look into is an inventory line of credit. Unlike an inventory term loan, an inventory line of credit lets businesses borrow up to their line’s limit and borrow more as they repay. This type of funding solution is perfect for businesses that experience seasonal demand as interest is only charged on the total amount borrowed. What’s more, borrowers can access the funds again as needed without having to go through the process of applying for another loan.

Inventory Financing Benefits and Drawbacks

As with any business decision, it’s important to do your due diligence. If you are seriously considering applying for an inventory financing loan, then it’s important to consider its many benefits and drawbacks.

Benefits of inventory financing

• Leverage your inventory instead of other assets. An inventory financing loan may be easier to qualify for as opposed to other types of business inventory loans since lenders ask borrowers to pledge their inventory as collateral.
• Get ahead of peak shopping seasons. While an inventory loan can help businesses stock up during peak shopping seasons, it can also help businesses that are trying to expand their product lines.
• Easily accessible funds for inventory purchases. If you were able to qualify for an inventory line of credit, then you would have accessible funds dedicated to your inventory needs. Just make sure to keep a close eye on your spending and don’t go over the credit limit!
• Works well with businesses of any size. No matter how big or small, businesses will encounter cash flow issues one way or another. Inventory financing is a great way to cover your inventory purchases without worrying about your other outgoing cash flow obligations.

Drawbacks of inventory financing

• May prove costly. Aside from the time-consuming and expensive due diligence process, businesses need to take into account the fees that come with an inventory financing loan. Some of these fees include origination fees, late fees, and prepayment penalties.
• Can only be used for inventory purposes. One big limitation of an inventory financing loan is that it can only be used to purchase inventory.
• May have high loan minimums. Because of its high setup costs, some lenders may require businesses to borrow a certain amount before their application could proceed. While loan minimums vary from one lender to another, some lenders may require a minimum of up to $500,000.
• Higher interest rates, shorter payment terms. Compared to other types of inventory lending, inventory financing loans are usually repaid over a shorter period which means businesses may have to cough up sizable monthly payments.

Are there alternatives to applying for an inventory loan or an inventory line of credit?

If you’re uncertain about applying for an inventory loan or an inventory line of credit from traditional financial institutions, the good news is that there are other alternative financing options you can consider. Check out some of them below!

• Credit cards – The great thing about having a business credit card is that you can use them to cover day-to-day business expenses while also earning points and rewards. Like lines of credit, business credit cards enable businesses to access a revolving line with a set limit. Most financial institutions also offer interest-free financing which is perfect for businesses that want to pay for big purchases over time without the hassle of paying added interest.
• Online loans – Due to its fast application process, online loans are becoming a popular choice for businesses that need a quick injection of cash. Online lenders usually allow borrowers to go through a pre-qualification process that would determine the different rates and terms they qualify for depending on their overall creditworthiness.
• Crowdfunding – Crowdfunding is a method of raising capital through an online network of individuals willing to provide the necessary funds for a business to expand, finance a new venture, or restock its inventory. Instead of taking out a traditional bank loan, businesses can use crowdfunding by asking a large group of people for small amounts of cash in order to meet a certain monetary goal. However, for a crowdfunding effort to succeed, businesses must carefully plan their strategy to capture the attention of their potential backers. One platform that specializes in an element of  inventory crowdfunding is Kickfurther.

How can Kickfurther help your business?

Kickfurther funds up to 100% of your inventory costs on flexible payment terms that you customize and control. With Kickfurther, you can fund your entire order(s) each time you need more inventory and put your existing capital to work growing your business without adding debt or giving up equity.

Why Kickfurther?

No immediate repayments: You don’t pay back until your new inventory order begins selling. You set your repayment schedule based on what works best for your cash flow.

Non-dilutive: Kickfurther doesn’t take equity in exchange for funding.

Not a debt: Kickfurther is not a loan, so it does not put debt on your books. Debt financing options can sometimes further constrain your working capital and access to capital, or even lower your business’s valuation if you are looking at venture capital or a sale.

Quick access: You need capital when your supplier payments are due. Kickfurther can fund your entire order(s) each time you need more inventory.

Kickfurther puts you in control of your business while delivering the costliest asset for most CPG brands. And by funding your largest expense (inventory), you can free up existing capital to grow your business wherever you need it – product development, advertising, adding headcount, etc.

Interested in inventory financing with Kickfurther? Create a business account today.

Forecasting the amount of inventory you need at any given time is always a challenging task. Businesses have to take into account the many variables associated with the timely delivery of stock as well as the unprecedented factors that may affect proper inventory management. While it’s true that inventory management is just one aspect of owning a business, not a lot of people realize the amount of work that goes into considering even the smallest details to ensure that customer demand is met.

Fortunately, there are a lot of techniques that businesses can use in order to avoid inventory issues. Having a deeper understanding of your inventory, through proper inventory forecasting, can help increase your revenue and eliminate stockouts.

What is inventory forecasting?

Inventory forecasting is a method used to predict the amount of inventory needed to satisfy future consumer demand. Businesses that conduct proper inventory forecasting can make informed decisions about future demand which, in turn, helps with financial management and inventory optimization. But how do you actually conduct proper inventory forecasting?

How do you forecast inventory?

Contrary to popular belief, inventory forecasting is more than just educated guesswork. Most inventory forecasting methods involve the use of historical data, past sales trends, and expert opinion from industry experts. However, it is important to keep in mind that inventory forecasts are not foolproof. Unforeseen external factors can always invalidate your predictions no matter how accurate you think they may be. To better understand inventory forecasting, there are certain factors you need to be aware of.

Understanding your inventory turnover ratio

Simply put, a business’s inventory turnover ratio is the rate at which a business sells and replaces its inventory during a certain period. If you’re wondering how you can calculate your own inventory turnover ratio, use the formula below:

Cost of Goods Sold ÷ Average Inventory = Inventory Turnover Ratio

What’s the importance of inventory turnover for a business? Great question! If you want to accurately predict your future inventory needs, it is absolutely necessary to look at how fast your inventory sells. Your inventory turnover ratio should also give you an idea about how efficient your operations are compared to industry standards. In general, a high turnover ratio means your sales are strong while a low turnover ratio indicates poor sales and excess inventory.

Improving your lead time

When it comes to inventory management, lead time represents the time it takes for a company to fulfill an order and replenish inventory after a customer receives an order. Factors such as shipping delays, stockouts, and human error may all play a role in longer lead times. Improving your lead time lets you get ahead of the competition by increasing the efficiency of your output, translating into faster order fulfillment.

Setting your reorder point

The reorder point (ROP) is the threshold that businesses set to trigger stock replenishment. According to QuickBooks, a specific product’s reorder point can be calculated by multiplying a product’s average daily sales to its delivery lead time and adding that to your safety stock.

(Average Daily Sales x Delivery Lead Time) + Safety Stock = Reorder Point

Setting an accurate reorder point saves businesses money from unnecessary inventory holding costs as well as prevents stockouts. It’s also important to remember that different products get sold at different rates. This means that you may have to set different reordering points depending on a product’s average daily sales.

Calculating your safety stock

As the name implies, safety stock refers to the extra inventory held by a business to reduce the risk of stockouts. Having the right amount of safety stock allows businesses to keep extra products on hand in case there is an unexpected increase in demand or a supplier fails to deliver items on time. Here’s how you can calculate your safety stock:

(Maximum daily usage x Maximum lead time) – (Average daily usage x Average time in days) = Safety Stock

Analyzing industry trends

No matter how established your business is, one trend change may affect the overall demand for your product. While qualitative in nature, looking at industry trends is one of the most important facets of inventory forecasting. Spotting and analyzing relevant trends help businesses predict where an industry is headed and allows them to always stay ahead of the competition.

Considering the seasonality of your products

In business, seasonality refers to expected changes that affect the availability of products as well as fluctuations in demand and quantity. Seasonality plays an important role in understanding why businesses have high or low seasons and gives them an idea about what type of forecasting methodology to use.

How to do inventory forecasting? What are the different techniques?

As mentioned in the previous section, there are different factors to consider when forecasting inventory. The same goes when choosing which inventory forecasting technique to utilize. In this article, we will talk about two types of forecasting methods: qualitative and quantitative inventory forecasting.

What is qualitative forecasting?

Qualitative inventory forecasting involves predicting consumer demand based on trends, seasonality, and the current status of the industry and the overall economic climate. This type of forecasting method is often characterized as subjective and non-mathematical. Qualitative forecasting is most useful in situations where data is unavailable or inadequate. Its main advantage is its ability to see external factors that may influence consumer behavior. Usually, qualitative forecasts are given by experienced sales professionals, production planners, marketing managers, and industry experts. Some of the most common types of qualitative forecasting include gathering executive opinion, conducting market research, and using the Delphi technique.

Side note: The Delphi technique is a forecasting method that collects the opinions of industry experts through a series of questions. When it comes to inventory management, this type of qualitative forecasting method is often used to predict future demand for a certain product.

What is quantitative forecasting?

Quantitative forecasting, as opposed to qualitative forecasting, involves the use of concrete data when predicting future revenue. Through the application of statistics on historical data, businesses can accurately calculate future demand as well as determine patterns that may influence a product’s future sales performance. What sets quantitative forecasting apart is its objectivity. This means that forecasts are based on hard numerical information and are not susceptible to prejudice or partiality.

What is the importance of inventory forecasting?

Inventory forecasting, if done properly, helps businesses secure enough stock to satisfy customer demand. It also gives businesses an idea about how much future capital they would need to be able to purchase additional inventory and meet customer demand. Other benefits of inventory forecasting include:

• Reduce the instances of overstocking and stockouts
• Increase customer satisfaction
• Better overall inventory management
• More accurate budgeting and labor scheduling

One underrated benefit of inventory forecasting is more accurate budget planning. Businesses, especially small to medium ones, do not have the same financial leeway as their larger counterparts. This means that small to medium-sized businesses are more prone to overstocking and stockouts due to a plethora of negative factors such as inventory mismanagement, delivery and logistics issues, and working capital shortage.

If you don’t want to miss out on future sales due to poor cash flow, you should check out Kickfurther.

Kickfurther is the world’s first online inventory financing platform that enables companies to access funds they usually cannot acquire through traditional sources. We connect brands to a community of eager buyers who help fund the inventory on consignment and give brands the flexibility to pay that back as they receive cash from their sales. This alleviates the cash-flow pinch that lenders can cause without customized repayment schedules allowing your brand to scale quickly without impeding your ability to maintain inventory.