The Jamaica Business Development Corporation (JBDC) is urging entrepreneurs to practise effective inventory management to increase profits.
The conversation came as the final in the series on distribution and consumer management for the month of September, under the theme: “Inventory Management Techniques for Small Businesses” held on September 20, 2022.
Haron Spencer, inventory management officer with the JBDC, equipped participants with fundamental information on the need for proper inventory management systems for their small businesses. He said, “Inventory management includes procuring, storing, picking, packing and shipping products. The goal is ensuring that the product is there when the customer is ready to buy it.”
Continuing, he said, “Inventory management is a crucial piece of business’ profitability but many small businesses don’t practice good management when it comes to the items they sell.”
Spencer went on to say, “The goal of inventory management is to understand stock levels and stock location.” He encouraged small business owners to ask three questions when doing proper inventory management: (1) Where will you store inventory? (2) How much inventory will you store? (3) How will you store your inventory? The answers to these questions, he said, will assist entrepreneurs in framing successful processes for tracking their stock.
In emphasising the need for small businesses implementing the right methodology for their business’ inventory management, Spencer shared, “Some businesses have too little inventory and are unable to meet customers’ expectations. This often drives customers away, sometimes to another business or drive them away for good.”
Contrasting this approach, Spencer said, “Some businesses go the other way by overstocking items just in case. The risk with this strategy is bleeding money from your business. Excess inventory ties up valuable cash flow but it also costs more to store and track.”
He further added “effective inventory management lies somewhere between these two extremes. While it requires more work and planning to achieve an efficient management process, your profits will reflect your efforts.” He therefore encouraged the participants to find the balance that works best for their business, that sees them yielding the most profit they can.
Spencer underscored the importance of small businesses managing their inventory successfully by showing the benefits of doing it correctly. He said, “Proper inventory management increases profits and this means having the right items to sell at the right time. It also improves cash flow, which means always having the right amount of items in stock, instead of tying up cash unnecessarily. Finally, proper inventory management means your business will have satisfied customers and happy customers bring other customers.”
The conversation culminated with Spencer exploring the various techniques of inventory management that small businesses can consider. Some of these included: first in first out (FIFO), last in first out (LIFO), demand forecasting, minimum order quantity vs economic order quantity, ABC analysis, safety stock inventory and drop shipping.
He told small business owners to examine the nature of their business and the stocks they use and assess what are the most viable options for them. In concluding, he said, “There are several ways you can manage your inventory. Consider the circumstances of your operation and implement the inventory management process that works for you.”