By Amber Colley
In today's world of instant consumer gratification, keeping up with demand can be tougher than ever before for a small business. Two-day shipping, Apple Pay and highly localized demand are the norm. Consumers have more options than ever and are not used to waiting. That is why it is more important than ever to increase the efficiency of your stocking, manufacturing or ordering processes. Having your product in the right quantity on the right shelf at the right time could be the difference between retaining and losing a customer.
The balancing act
Stocking too much or too little inventory can result in uneven cash flow. According to the first quarter results of the Private Capital Access Index by Dun & Bradstreet and Pepperdine University, 52% of small business respondents sought financing to keep up with increased demand. However, maintaining a proportionate amount of in-stock merchandise is a delicate balance. On the one hand, you don't want too large a portion of your company's assets to be tied up in product. If demand doesn't line up with your predictions, you could end up with a surplus and incur financial loss. On the other hand, not stocking enough of an item may lead to a loss of customers. Consumers who find a product out-of-stock are likely to either give up or buy from a competing outlet.
Tips for improving efficiencies
Determining how much or how little merchandise to keep in-stock can be a significant challenge for a small business. However, focusing your efforts on a couple of key areas can significantly improve your ability to maximize profits and retain customers.
Automating inventory management can dramatically increase restocking efficiency. Even with the plethora of software options available, many small business owners still use pen-and-paper or Excel spreadsheets to track inventory, or don't keep track of it at all. Using a cloud-based inventory management software, you can track your inventory in real time across multiple locations. You can be notified instantly when you are running low on merchandise and many platforms come with built-in sales analytics that can help prevent product shortages and excess stock, reduce costs, and optimize warehouse organization.
Accurate demand forecasting can be another benefit of automation. Many modern analytics platforms can seamlessly take into account multiple factors that can affect the movement of your merchandise: historical sales figures, market trends, predicted growth, promotions, marketing efforts and more. Precise forecasting allows for more advanced planning and less room for error. This not only ensures that you have the right amount of product at the right time, but also helps you understand the trends and the reasons why.
Establishing a line of trade credit with your vendors can also help, meaning that you can order the merchandise or raw materials you need without making an immediate cash payment. Many businesses rely on this arrangement, especially in the early stages of growth. Even further down the road, and even with a sophisticated inventory management and forecasting system, unexpected circumstances could still arise. For example, you could land a huge order that needs to be filled within a specific timeframe. A good rule of thumb is to be constantly building and monitoring your business credit file, so that you will have the flexibility to adapt to changes in the marketplace. This way, you can get the materials you need to keep your business afloat without having to take a loan with unfavorable terms.
Every small business has different inventory, manufacturing and buying needs. However, making each step of the process as accurate and efficient as possible through automation can give your business a competitive advantage in the form of cutting costs and retaining customers. Your best-educated guess may not cut it in today's world, where consumers expect a seamless shopping experience. Take the first step toward feeling confident in your ability to serve your customers and run a reliable business.
Source: Retail DIVE, May 7, 2019 (https://www.retaildive.com/news/how-small-businesses-can-keep-up-with-high-retail-demand/553745/)