5 Considerations to Craft Your Inventory Management Strategy

March 15, 2022

For many businesses, inventory is one of the largest assets on the balance sheet. Yet there’s no one-size-fits-all formula to keep stock at optimum levels. 

A key part of the equation involves inventory management strategies — something that’s crucial in Northern Nevada, from retailer stockrooms to the manufacturers’ warehouses . Yet among small businesses, which make up 99% of Nevada companies , 46% don’t track their inventory systematically, according to IHL Group, a global research and advisory firm for the retail and hospitality industries.

The labor fluctuations of recent years have only exacerbated the problem. Manual inventory tracking takes huge time investments. That’s why some companies are turning to technologies that sounded like science fiction just a few years ago. For example, Sam’s Club has turned its floor-scrubbing robots into multitasking machines by adding technology that enables them to scan shelves for accurate stocking and pricing. The innovation was expected to provide timely inventory reports to store managers while employees focus on customers.  
Building a workable inventory management plan

Robots aside, a creative approach to inventory management can deliver better results for your business and your customers. When you’re creating or updating your inventory management strategy, you may wish to consider these five points:

1. Inventory is another form of capital. Both under-stocking and over-stocking carry risk. Managing your inventory more effectively can also maximize your working capital. Your trusted advisors, including your business banker, may advise building flexibility into your capital so that you have funding at your fingertips when making a decision about stock. That funding can empower you to expand your inventory when the right time (and price) comes along. 

2. Future desirability may outweigh supply-chain issues. Over the last few years, we’ve all learned how tricky the supply chain can be. Carrying more inventory can insulate you from ups and down, but only if your stock has staying power. Consider a Halloween store that doesn’t sell out by Oct. 31. Some inventory is always in demand, from The Hulk masks to vampire fangs. But this year’s “Tiger King” costume may have revelers asking “Who?” next year. It’s wise to be wary of tying up your capital in inventory that you suspect will be less desirable six months or a year in the future. 

3. Your banker can recommend cash management solutions. A banker who has deep expertise in your industry sector can assist you with assessing the right balance of inventory and funding for your business. Banking solutions such as quick automated deposits and sweep accounts can free up cash flow, while financing instruments may deliver more flexibility for inventory management. 

4. Technology investments can free up time and manpower. Odds are, inventory-scanning robots aren’t in the cards for your business. Still, investing in inventory management technology may be able to save you money. As one example, some footwear and apparel retailers report reducing their inventory labor needs by 75% when they move from manually counting items to automated radio frequency identification (RFID) systems.  This type of precision tracking can also help you avoid unexpected stockouts and rush-order fees. If you’re contemplating an investment in new technology, your banker can discuss financing options and help you calculate ROI.

5. Customer attitudes can inform optimal stock levels. The ideal inventory level depends on your customers’ needs and wants. Think about your most recent post-holiday shopping trip as a consumer: You probably didn’t find overflowing clearance racks of discounted after-holiday purchases. Instead, you may have noticed that many retailers stock only minimal holiday supplies, and they sell out quickly. In a similar situation in your business, do your customers have patience if they miss out? Or will they look elsewhere to spend their money? Your answer can help drive your inventory decisions and avoid excess inventory that could be taking up space (and capital) that you could be using for something else.

To learn more about how our expert bankers can help you craft a workable inventory strategy no matter the supply chain or labor market conditions, contact your First Independent Bank relationship manager or find out more about what our bank can offer businesses like yours.