Inventory management is a system for tracking your inventory that goes far beyond just asking what's on your shelves right now. Although you absolutely should know what's on your shelves right now, especially if there's an escaped shelf snake from the local zoo. Don't worry, there's probably not.
Knowing what you have in stock is only one part of inventory management. It's also about knowing where your inventory is coming from, where it's going, and how fast each item is moving into and out of your store. Tracking all of this data about your inventory can help you to stock the right amount of inventory at the right time, ensuring that your customers can find what they want to buy, and that you're not filling your store or warehouse with items no one wants.
Overstocking goods costs companies around the globe hundreds of billions of dollars annually. Have you ever bought a bunch of sour cream, used a little bit for that one night you had nachos, and then had the rest go bad in the fridge and have to throw it out? Now imagine the same thing globally, but with a fridge that's a billion times as large, and the sour cream is made of every type of saleable good. What gets thrown away is money. Overstocking is nacho best option.
Understocking costs companies money too. A recent survey showed that the number one reason customers leave a store to order online is that the item is out of stock. We're living in the future where people carry the whole Internet in their pocket, movies are on demand, and food is delivered to your door. Nobody's waiting around for items you don't have. Understocking goods is basically telling your customers, "please shop elsewhere."
Inventory management is a system for sourcing, storing, and selling products in inventory. Yes, it's helpful to do all three if you're trying to make money. (Although if you're trying to lose money, storing products without selling them is a great way to do it.) An inventory management spreadsheet will let you track and manage product inventory, sales, fulfillment centers, and vendor relationships.
Does that sound like a lot to keep track of? That's because it is. But there's a good reason to do so: Successful inventory management means you'll have the right products, at the right stock levels, in the right place, at the right time, and at the right cost as well as price. Right? Right.
An inventory management spreadsheet can certainly look complex, because it contains a vast amount of information. But if we dive into the tabs of this spreadsheet template, you'll see that it's actually arranged in a very logical way:
The first step in inventory management is to know exactly what inventory you have in stock. Here we have columns organized by category, so you can track all your side tables in one place. Each item has a picture along with the product number and name, to make sure you don't accidentally confuse your 20-0003 "rectangular bedside table" which happens to be small, with your 20-0006 "small bedside table" which happens to be rectangular. In addition to showing the unit price and how many units you have in stock, each item also shows the fulfillment center so you know exactly where that stock is shipping from.
Tracks the sales of each product, by date and point of sale. Seeing the quantity of items sold and the total price will let you see at a glance which of your items are the most popular, and which are bringing in the most gross revenue. (Probably that expired sour cream; definitely gross.)
If you have customers buying online—which you probably do; the Internet is so popular that you're using it right now—then it's useful to track the fulfillment centers you use to ship orders. Here we see each center coded in with the address, city, and state, a picture so you remember the warehouse, and a list of which of your products they ship.
In order to sell stuff, you need to get stuff. Track all of your vendors in one place so you not only know where they're located and what products they provide you, but who your contact is so you can recognize them if you run into them at the supermarket.
In an ideal world, you'd automatically have exactly enough stock to supply everything customers wanted, and no extra stock that they didn't want. As you may have noticed if you follow the news, this isn't the ideal world.
But inventory management is the best tool we have for approaching that ideal. Smart decisions are made based on data, and tracking all of your inventory on a central spreadsheet will help you see all that data at once and plan accordingly. Getting an accurate view of how much stock you need is incredibly valuable for any business. Overstocking is a wasted expense that costs you money. Understocking costs you customers, which also costs you money. Good inventory management will help you avoid both.
In addition, it's also very helpful to be able to have all of your vendors and fulfillment centers laid out for each product, so you can make backup plans in case of supply chain issues. Though maybe you think you don't have to worry about supply chain issues. What are the odds that a container ship would ever block up the whole Suez Canal for nearly a week, or that a bunch of truckers would go on strike and protest? That would probably never happen.
Literally any business that sells physical goods.
Whether you're a mom and pop furniture store tracking what you have in the showroom, a massive retailer with 20 fulfillment centers, or a knitter with a pile of hats in your room that you sell online, inventory management is essential for your business. If you sell things, then you need to know what's in stock, what's selling, what you need more of, and how you're getting it.
In other words, you need to keep track of your stuff. And that's what inventory management is all about.