How to increase business efficiency or reduce inventory
Entrepreneurs always have the question of how to increase business efficiency. Efficiency in a small business needs to be increased constantly, looking for new ways and opportunities. And one of the possible ways to increase efficiency in your business is to reduce inventory, however strange it may seem. We’ll talk about this today.
Why less inventory is a more efficient business?
First, inventory is a cost. First you need to purchase them, and then store them in a warehouse (which, by the way, is most likely for rent, no?).
Secondly, fixed assets – a large amount of money invested in inventories, can be “out of business” for a long time. And as you know, dear entrepreneur, money is the main potential energy of your business. The more of them, the better. Having large stocks of goods in stock, you lose part of the potential of your business.
Large reserves are a vague concept, of course. For simplicity, we say this: stocks for a period greater than the time of delivery of the goods can be considered large. For example, you are delivered the goods within 2 weeks from the date of application. Accordingly, the best option is to keep the stock in stock for 3 weeks (the buffer period also does not hurt). Why store stocks for 3 months, say? Maybe shipping will be cheaper? Or even the product itself with a larger purchase? If you have additional funds, this is, of course, good. Well, if they are not, then ensuring their turnover is more important than buying goods at 5-10% cheaper.
Thirdly, large stocks of goods hide from you the real problems of the business, slowing down their solution, and thereby the efficiency and development of the business.
What problems can hide large inventories from the business owner?
Problems in marketing – lack of market research and ignorance of consumer requirements is covered by large quantities of stocks. Or, conversely, due to the large number of stagnant goods, market needs are ignored and insisted on the sale of stocks. For their part, they are selling less and less (the market does not need it anymore), the inflow of money is cut off, business is in danger. This, of course, does not apply to large players.
Problems with suppliers – large inventories slow down the effective establishment of supply chains. If in simple terms, when you have a huge amount of goods in stock, then being late for a week of the next delivery will not seem a problem (and you, accordingly, will not do anything) – i.e. you get used to inefficient work with suppliers.
Problems with production – the same meaning. You will not see the problem in time when, for example, the norm is not fulfilled in your enterprise for a whole month. But there are reserves, and it seems to be nothing. Is it nothing?
Control problems – it’s very simple here: it’s easier to control and analyze 1,000 products than 1,000,000, right?
Therefore, it is very important to constantly monitor your stocks, analyze and monitor the market. Thus, you will create more favorable conditions for increasing the efficiency in your business in two ways: reducing costs and increasing business potential, and early resolution of emerging problems.
Important: no one calls you, dear reader, figuratively speaking, “work with two goods.” In any case, you must be competitive. The essence of this article was different, and I am sure that you understood it correctly.