5 Tips for Better and Effective Stock Management

Proper stock management is critical for any business owner who wants to succeed. If you’re selling a physical product, few things can derail your business as quickly as poor stock management.

With the right stock management process, you can maintain healthy stock levels, or stock control, with ease. Stock management involves implementing a system to reduce errors and streamline the shipping and receiving process, ultimately lowering your spending and increasing your free cash flow.

Why is stock management important?

Stock management helps to reduce the chance that you’ll run out of valuable products. When you’re engaging in effective stock management, you’re optimizing your use of warehouse space by reducing unnecessary stock counts.

For example, if you’re practicing good stock management, you’ll know what’s not selling well, and can avoid carrying too much of that item moving forward. This also means you can avoid renting or purchasing space you don’t need, which cuts down on real estate spending.

Stock management helps to reduce the chance that you’ll run out of valuable products. When you’re engaging in effective stock management, you’re optimizing your use of warehouse space by reducing unnecessary stock counts. 

Stock management allows you to maintain a healthier cash flow by ensuring you’re carrying products with high customer demand. It’s hard to make a profit when you don’t have the product customers want to buy.

How to improve your stock management now

There’s no single solution to every stock management problem, as businesses have different structures and needs. But there are some universal stock management techniques that will help virtually any business avoid an stock nightmare.

1. Live and breathe the ABC analysis

The first step is to have a stock management process in place before you start optimizing and tweaking it. One of the easiest stock management systems to implement and build upon is based on ABC analysis, which separates your warehouse items into three categories:

• A: Your A items are a top priority to your business. Think of A items as the ones that drive the most profit, directly or indirectly. This includes raw materials, as these items are essential for creating your products, and are ones you can’t afford to run out of.
• B: Your B items are generally not as valuable as the A items, but they’re still important. These could be things like less-expensive or less-utilized raw materials, or items that don’t sell as often or with as high a margin. You’ll likely want to maintain some stock of B items.
• C: The C items are worth very little, but still play a role in your company’s success. These stock items could be finished products, or they could be an incredibly inexpensive raw material. You’ll likely have a lot of C items, although their actual value is low.

The types of stock that fall into the above categories can vary from low-cost finished products to raw materials to high-cost, low-quantity items. Think about your physical stock space. Then consider how your business would be impacted if you had too much or too little of an item in each category. This will help you determine into which category each item should fall.

There’s no single solution to every inventory management problem, as businesses have different structures and needs. But there are some universal stock management techniques that will help virtually any business avoid an stock nightmare.

2. Cut human error with a stock management system

While mistakes are fine and inevitable, they’re also a point of concern when it comes to stock management. Stock management software can reduce human error.

The right stock tracking software system will help you remove the manual labor of tracking stock on paper. Look for stock software that’s intuitive. Ensure your team is trained, and soon you’ll find stock management is faster and easier.

3. Implement supply chain management

All the inventory management strategies in the world won’t help you if your supply chain is a mess. This is where supply chain management comes into play.

Supply chain management is the practice of optimizing and monitoring your relationship with materials providers, shipping or drop shipping partners, and any other parties that come into play in your stock lifecycle.

When it comes to supply chain management, pay attention to the lead time between when you place an order or initiate a process with any of your supply chain partners, and when the action is completed. If you notice a bottleneck in your shipping, receiving, or production process, be sure to reach out to that partner to remedy the situation.

4. Avoid and liquidate excess stock

Every inch of your business and storage space is valuable. So you want to keep only the amount of product necessary, plus safety stock to avoid a complete stockout of high-demand items.

Perform stock audits and pay attention to your sales logs to see which items are selling and which are sitting long enough to be dead stock, or stock that’s simply taking up room.

It’s also a good idea to practice just-in-time (JIT) production. This means you keep the minimum amount of raw materials necessary, and order more when you need it to complete production. This allows you to cut down carrying costs and reduce wasted space.

Set a reorder point

A reorder point is the point at which you order more of a product or material. With a reorder point, you can maintain healthy stock levels without having to constantly monitor your stock. If you get the right stock management software, you can typically set a reorder point that triggers automatically.

That said, you will need to adjust your reorder point over time. Customer demands will shift over time, and a hot product from a year ago may be dead stock tomorrow. Don’t set a reorder point and forget it. Regularly check your stock levels to see if certain items are no longer selling or not selling as well. If this is the case, you can likely loosen up the reorder point and allow that storage space to be used for something more valuable.

Properly managed stock will allow you to cut operating costs, provide your customers with the products they need, and ultimately run a more successful business. While it may not show you the immediate return on investment that advertising or new products will, it will lay the foundation for a healthier business  moving forward.