If we talk about the present age, it is no secret that this is the era of using digital platforms, all the businesses are switching from physically created businesses towards virtual ones. Plus, the pandemic has created a huge impact and affected all the companies severely. Therefore, people are now preferring to carry out their business and job dealings online by sitting at their homes. In addition to this, when we talk about doing a business, managing inventory-related matters in the firm is of primary importance – because if not handled effectively, many problems are seen and faced. Some of them are small and handled easily but some require proper focus and experienced actions.
The inventory management system of the business when it comes to our minds necessarily includes; how to manage the stock effectively? What would be the cost of the products? How are we going to ship it? How will the storage costs be handled? And the excess inventory would be handled? The answers to all these above-stated questions could be given by undertaking some important and effective methods in order to manage your business’s inventory efficiently using a good inventory management tool.
Understanding Inventory Management:
A simple and easy explanation of the inventory management system would be, how well you handle the stock of your company when the stock is to be ordered and is it supplied efficiently towards its customers or not? All of these things comprise an inventory management system.
There is no doubt that one has to manage the inventory of his business very effectively in order to earn a handsome and steady revenue for a long time. You can not just start a business and then check up on your inventory after a month. But you need to go for the practices that will help you update the levels of stock of your business and enhance the workings of your business.
Best Tool for Inventory Management:
If we talk generally, many businessmen nowadays are going for the option of digital workings because it causes much less time and also contributes towards the reliability of your business. Some of the biggest companies in the world like Amazon are also using automation in their company to fasten and manage all the customer dealings. However, you could also use some effective inventory management tools in order to enhance your business at a high level.
Using Inventooly as the best Inventory management tool, for the effective inventory management of your business would help you a lot to polish the performance of your inventory-related operations. In addition to this, Inventooly allows you to centralize all of your sales channels under one location, which eliminates the confusion and chaos factor of risk in the business. All of your important decisions regarding the inventory of your business are being made in one location without scattered performance.
Moreover, using Inventooly as your inventory management tool would also enable you manage your order levels very effectively without being confused about the pending, shipped, or received orders.
ABC Analysis Tool:
Using the ABC analysis tool would help you to divide all the products of your inventory into three major groups. Segmentation of the stock into A, B, and C categories would help you to monitor them and also make decisions on what should be done to improve the ratio of profits.
- In the A category you will see the most important portion of products that requires some serious attention.
- In the B category, there are some products that produce less revenue than A ones but more than those in the C category.
- In the C portion of products, you will see the least important products which require less amount of attention.
Importance of ABC Analysis Inventory Management Tool:
As we are aware that the managers or stakeholders of the firm are always keen on looking for effective ways to manage the inventory and allot good prices with that of good quality products. Therefore, in order to fulfill this goal, the ABC analysis tool of inventory management will help you a lot. Very few of us know that this technique is also termed the “Always Better Control” method.
Your firm’s superior products are lined up in category A which helps you to focus on them more effectively as they include a larger portion of your profit. After that in groups, B and C are the less important products but still, you could make efforts to improve them once you divide all of them.
Calculating the Value of the Product under the ABC Analysis Tool:
In order to calculate the correct value of your products, which are divided into A, B, and C categories in your inventory, you need to execute a simple formula stated below;
“(Annual number of items sold) x (Cost per item) = (Annual usage value per product)”
Benefits of using ABC Analysis:
As we have discussed above the main concept of the ABC analysis inventory management tool, you can use it easily for the grading system of your products. This will help you minimize your manual work and increase the accuracy of calculations in the same way. Now let us dive into some of the main and important advantages you will get by using this tool for your business’s inventory management.
- Helps you decide the correct prices of products:
Employing ABC analysis as your inventory management tool will help you at a great level for deciding the prices of your products. For instance; the “A” category products represent those products that generate a high amount of revenue for your company. So you can increase its prices or offer discounted deals so that there would be a noticeable growth in the supply of that product.
Similarly, if we talk about the C category products, you could always re-market your products and display them through sale to attract customers. This will improve the re-selling of your products at a good price level.
- Improves the forecasting about future:
As we have heard that the purpose of using the ABC Analysis inventory management tool is mainly to differentiate among your product categories of the businesses so that you can be aware of which is the most revenue-generating category. However, this tool would also help you to make some efficient forecasts about the future. Wonder how?
When you have scaled all your products from A to C levels, you would be able to observe which of your company’s products are consuming the costs only and will lead to a loss in the future. By this, you could easily tell which products should not be continued in the future. Moreover, the A-level products would show you a good scale of revenue that will help you expand this area of inventory as this could earn you a good time for your business in the future ahead.
- Understanding Customers Demand:
When you categorize all of your inventory according to this ABC Analysis inventory management tool, you will observe which portion of the inventory is showing the highest sales and which are the least sold products. This will let you know about the demands of your customers.
As we all know that customer demand plays an important role in the success of any business. You could never stand alone and succeed if there is no one to buy from you. Therefore, you need to adopt the rule of;
“You should sell what the customers want, not what you can sell them”.
Therefore, the ABC analysis inventory management tool helps you to know about the demands of your customers, by which you can improve display flash sales to attract more of them towards your business. Understanding the demands of the customers could facilitate you in;
- Showing how much importance you give to your customers.
- Solving the issues of the customers.
- Target a large audience with your courtesy towards them.
- Creating a long-term relationship with your customers.
- Helps to Get Rid of Excessive and Wasted Stock:
Another benefit that you can get with the ABC analysis tool of inventory management in your business is that it helps you and guides you in an efficient manner to get rid of your excess stock of the firm.
For instance; when you have categorized all of your products in A, B, and C categories, you will be able to notice which stock is lying idle in your firm and not producing revenue for you. After some time, if there is no specific improvement in the lowest category, you could eliminate that from your business. However, you could always improve your low-level stock if you want to keep it in your company. The point is, if your stock has become old and is not preferred by the customers anymore, you could get rid of this by observing its loss for some time.
- Minimize storage costs:
The use of the ABC analysis tool in managing the inventory of your business could also help you with your storage costs. Because, when you scale all of your products from A to C categories, you will be able to know which of your products are being preferred the most, so you can increase its stock.
Likewise, you will also be able to examine the least sold goods. By this, you can eradicate them from your company, as they also require a lot of maintenance, and obviously, your holding, as well as storage cost, increases to a dangerous level.
- Guidance about correct optimization of stock levels:
Using the ABC analysis inventory tool in terms of managing your business’s inventory will lead you to create a system, which will record the ins and outs of the stock during their sale. It will help you to correctly optimize your stock levels, how much of your stock is left in the storage houses, and how much is sold.
In addition to this, using this tool could also enable you to make some effective decisions like setting up a target for the current month’s sales. Afterward, you can check how much inventory is left and sold and whether you have achieved your targeted level or not.
When we talk about the inventory management system of any business, our main goal is to achieve the maximum amount of profit by employing effective techniques and methods for our inventory. Therefore, using the ABC Analysis tool for managing your inventory could lead you to enhance the performance of your business at a huge level.
You could easily categorize all of your products and scale them from level A to level C, after which you will be able to make important decisions about which of your products are yielding a high amount of revenue and which are not.