From Tech to Flexible Financing: 5 Ways to Improve Inventory Management
For businesses that carry inventory, stock is often one of the largest assets on the balance sheet. Determining how much stock to carry — and which types — presents a real challenge to many companies.
Further complicating this aspect of business administration, effective inventory management also requires human attention — a need that has become more demanding with the labor fluctuations that have affected many companies in recent years. For example, in early 2022, there were more than 1,200 open inventory management positions in Las Vegas alone .
Given those kinds of labor shortages, some companies are adopting new technologies to solve inventory challenges. In one dramatic example, Sam’s Club and Walmart have experimented with robots to support inventory management, such as devices attached to floor-scrubbing robots so they can also scan shelves for accurate stocking and pricing. Robots aside, company owners and managers have smart options to address inventory management with more attainable technology and sound business thinking.
Putting inventory management to work
No one-size-fits-all formula can tell you that you’re carrying optimum inventory levels, but certain tactics can help make the most of your approach. Here are five things to consider when developing your inventory strategy:
1. Weigh future desirability vs. supply-chain issues. By stocking up, you may avoid some of the problems that arise with a tricky supply chain — but only if your inventory is somewhat timeless. For example, some Halloween products carry over from year to year. Many revelers appreciate a good set of vampire fangs, and the Hulk is a time-honored classic. But more recent crazes like “Tiger King” costumes may not have staying power. If you suspect something won’t be so desirable six months or a year down the road, you may wish to be wary of tying up capital.
2. Make the most of technology. Inventory management technology can be a significant investment, but one that may reduce your overall spending on inventory. Precision inventory tracking can audit stock efficiently to stay abreast of what you have and where it’s located, and help you avoid unexpected out-of-stock emergencies and rush-order fees. The payoff can be significant: In 2020, out-of-stock items in the retail sector were valued at $1.14 trillion. Yet 46% of small businesses don’t track their inventory systematically, according to IHL Group, a global research and advisory firm for the retail and hospitality industries. Before you upgrade your system, your banker can discuss financing options and help you calculate the potential ROI.
3. Consider your customers’ attitudes when you calculate stock levels. Ultimately, what constitutes an ideal inventory supply depends on your unique business and your customers’ needs and wants. Think about the last time you, as a consumer, shopped for holiday goods, whether Valentine’s Day candy or Fourth of July flags. You may have noticed that many retailers keep only minimal holiday supplies, which sell out quickly. In a similar situation at your business, will customers tolerate potentially missing out? Or will they take their wallets elsewhere? Your answer can help drive your inventory decisions — and avoid excess inventory that could be taking up space (and capital).
4. Consult your banker for cash management solutions. Your relationship banker should have deep expertise in your industry sector so that they can suggest appropriate banking strategies for effective inventory management. You may be able to implement solutions such as sweep accounts and automated deposits to speed cash flow. And you may have access to financing instruments that can deliver more flexibility for inventory management.
5. Remember that inventory is capital. In many instances, your banker and other financial advisors will advise you to build some flexibility into your capital so that you have the right funding in place to make decisions about stocking your shelves. After all, both over-stocking and under-stocking create risk. You can seize opportunities to expand your inventory at the right time and price with funding availability.
To discover more about how our bankers serve as trusted advisors to help companies maintain the right balance of inventory and other capital, contact your Bank of Nevada relationship manager or find out more about what our bank can offer businesses like yours.