Having the right amount of inventory is crucial to running an effective business. After all, your customers are ultimately purchasing your inventory from you, so it is, in a way, directly related to sales and profitability. But how much inventory is the right amount of inventory? Too much inventory, and you could find yourself doling out more money than your business can afford. Too little inventory, and you run the risk of not getting your customers the products they need in a timely fashion.

This is why you need to have an effective inventory management system in place, so that you can do right by yourself, your customers, and the bottom line. Here, we will touch on a few effective inventory management methods as well as what goes into determining the ideal amount of inventory.

​​​​Managing Your Customers’ Demands

Your customers’ demands can tell you a lot about whether or not you are keeping the right amount of inventory.

To appropriately manage your customers’ demands, you need to look at variety of different factors. For one, you need to pay special attention to how many orders any given customer typically places. This is not always a consistent measurement, however, because it all depends on when or why that customer is placing a particular order. What are your customers’ shopping habits? It is likely, for example, that they tend to shop more during holidays, such as Christmas, than during other times of the year. You will want to take this into account, specifically when determining seasonal inventory numbers.

Are you running any special promotions, such as “Buy One, Get One Free?” Then your customers’ demands will likely shift as a result of that. Did one of your competitors come out with a product that is similar to your highest selling product? This too could impact customers’ demands. Consider all of these influences when going about managing the demands of your customers.

Paying Attention To Industry Standards

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Industry standards are another effective indicator for regulating the right amount of inventory. Let’s say, for example, that you own a custom clothing company. You should research other custom clothing companies to determine how much inventory they tend to keep and what their inventory turnover rates look like.

Inventory standards usually vary on an industry-to-industry basis. For instance, food and beverage companies usually have much higher turnover rates than the majority of major retailers. If you contact a trade association, you will likely be able to figure out a certain industry’s inventory standards. But keep in mind that even when dealing with businesses in the same industry, each company is different. So pay attention to industry standards, but not rigidly so.

Determining The Reliability And Effectiveness Of Your Suppliers

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Take into account how quickly your suppliers deliver goods to you when deciding how much inventory you should have at any given time. If the supplier delivery process is a lengthy one, and you anticipate a massive number of orders from your customers in the near future, then you should probably consider ordering more inventory ahead of time. If you have enough storage space, that is.

Communicate with your suppliers. Know when their busy times are and when your busy times are. Are they usually upfront with you about how long the process takes? Have you considered any unforeseen delays? Depending on what sort of supplier you are dealing with, this whole process can be a headache, so, as far as inventory is concerned, you will want to crunch some numbers and prepare for the inevitable.

Considering Inventory And Inventory Storage Costs

We just mentioned how it may be a good idea, depending on your suppliers’ habits or your consumers’ demands, to buy inventory in bulk. While this may be a prudent endeavor, bulk purchasing is not only dependent on how much storage space you have, but also on how much inventory you can afford.

It is helpful to consider your inventory carrying costs as well. That is, how much you are spending on both the rent, insurance, utilities, and upkeep of your warehouse. If the costs of your inventory and your inventory storage are astronomical, then this will also be a determining factor in how much inventory you should have on hand.

Managing Inventory Is Key To Maximizing Profits

When determining how much inventory you should keep, effective inventory management is paramount. From understanding the demands of your customers to keeping detailed accounts of how much you are paying for inventory, proper inventory management simplifies everything.

If there is one little snag in the system, it could set your back immensely. That is why staying vigilant throughout the entire inventory management process, communicating with and working with the most qualified people, and using as many available tools as you can to your advantage is required if you want your company to achieve maximum profitability and optimal growth.

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