As labor fluctuations and supply chain problems have impacted companies in recent years, it can be increasingly challenging for businesses of all sizes to track and manage inventory effectively.
In Southern California, we’ve felt the effects acutely as supply chain issues, soaring online orders and labor shortages crunched the Port of Long Beach and Port of Los Angeles, along with most everything in the vicinity. Warehouse capacity in the nearby Inland Empire reached the lowest vacancy level ever measured, at a stunning 0.7%, according to CBRE. And industrial real estate wasn’t much more available elsewhere in the region, with Orange County at 0.9%, Los Angeles at 1.6% and San Diego at 1.9%.
These congested warehouses aren’t being emptied very quickly due to the shortage of warehouse workers. As a result, inventory-carrying businesses all the way down the line are left wondering just what level of goods they need to have on hand — and there’s no one-size-fits-all answer.
Inventory management for a stronger balance sheet
Whether you have an off-site warehouse or an on-site stockroom, a strategic and up-to-date approach to managing your inventory can also help make the most of your working capital. Here are five things to take into consideration for your inventory strategy:
1. Adopt technology innovations. In early 2022, Sam’s Club updated its floor-scrubbing robots to also take inventory. The robots can scan shelves to check stocking and pricing — providing up-to-date info to store managers without taking employees away from customer service. Without inventory-scanning robots, however, most businesses can benefit from an investment in inventory management technology to track inventory and keep accurate records. Precision tracking enables efficient stock audits to avoid unexpected stockouts and rush-order fees. To cover the investment, discuss financing options with your banker, who may also be able to help you calculate ROI.
2. Maximize cash management. An expert relationship banker who is knowledgeable about your industry sector can suggest appropriate banking strategies to strengthen your inventory management opportunities. You may benefit from freeing up cash flow with solutions such as sweep accounts and fast, automated deposits. And financing instruments can increase your financial flexibility to buy inventory when you need it.
3. Align stock levels with customer attitudes. Each business has a unique “ideal” inventory level based on customers’ wants and needs. Think of the last time you shopped as a consumer for Valentine’s Day candy or Fourth of July flags. You may have noticed that many retailers keep only minimal holiday supplies — and the racks empty quickly. In your business, will customers tolerate this type of situation? Or will annoyed buyers spend their money elsewhere? The answer can inform your inventory decisions.
4. Consider obsolescence and future desirability. Similarly, carrying higher inventory levels can insulate you from supply chain problems — but only if your stock has staying power. For example, certain categories of Halloween inventory can carry over: Vampire fangs are eternal, and the Hulk is a time-honored classic. “Tiger King,” on the other hand, may fall away in favor of another fad. You may wish to be wary of tying up your capital in stock that you suspect will lose its appeal a few months down the road.
5. Remember that inventory is capital. Companies take risks due to over-stocking or under-stocking. To flex with your needs, your banker and other financial advisors may advise you to create some cushion in your capital so that you have the right funding in place to make necessary decisions. Having funding available ahead of time can enable you to expand your inventory at the right price — especially stock that is a commodity or at low risk of obsolescence.
Our bankers can serve as trusted advisors to help you determine and establish the funding levels that will empower you to successfully meet your inventory needs, even amid ups and downs in the supply chain and labor market. Contact your Torrey Pines Bank relationship manager or learn more about what our bank can offer businesses like yours.