Let me paint you two pictures.
Picture one. A customer walks into your store. They typically buy their Omo from you once a week. This time they stop by your shop and find you are out of Omo! You try to offer them a competitive product, but they are loyal to the Omo brand. They walk a few doors down and buy it from your competitor. They decide that they like the competitor better and they don’t shop from you anymore.
Picture two. Your shop is well stocked. You have pants and shirts of all colors, shapes, and sizes. You have so much stock that sometimes you don’t even remember what you have. One day, you get a message from a friend on Whatsapp telling you a container of shirts just arrived in the port. They had their tags sewn on upside down, so they are being sold at a deep discount. It’s a huge opportunity for you. You look into your bank account and you see you have no money – all of your profits are sitting on your shelf in the form of inventory. You can’t buy those shirts.
What do these two pictures have in common? Both were caused by poor inventory management practices and both resulted in the loss of sales. Good inventory management can be the difference between business failure and success, despite competition. Here are three things that you can do to better manage your inventory.
1. FIFO
No, that’s not the name of a dog. It’s an acronym that stands for “First In, First Out”. It basically means that you should sell your older products before your newest ones. It is especially important for perishables. Imagine that you sell fruit and each day you sell the produce that just arrived leaving the ones from the day before to rot. We recommend that you use it no matter what you sell. Clothes can go out of style, technology can become obsolete, colors can fade, boxes can be damaged, and dusty products are less attractive. So how do you make sure that you use FIFO? If you sell products from a shelf, stock from the back. Put all new products behind existing ones. If you keep everything in a warehouse, organize each product by the arrival date with a clear label. Using FIFO helps you to reduce spoilage costs and keep your inventory turning.
2. Keep a safety stock
You can never perfectly predict demand. In fact, you can’t always predict supply either. You never know when your supplier will have a stock out or when the truck will break down on the road. A safety stock is a number of units you always will have on hand. The size of the stock depends on what you are selling, how quickly you can restock, the variability of your demand, and your risk tolerance. Make an estimate and then adapt based on your experience. There is a scientific formula for determining your safety stock, but to calculate it, you need sales and order data over time. This leads to the third tip.
3. Keep records!
A simple inventory tracking sheet can go a long way to increase your profitability. Used in conjunction with OZÉ, you can avoid both of the pictures painted at the beginning of this blog. You can download one for free here! Use OZÉ to record your sales and expense as you normally would. Then every day (or every few days) enter your OZÉ sales and expenses into the tracker. Even with a small safety stock and solid management, spoilage cannot be avoided, so make sure you record when you throw away expired products. There is a tab for that on the inventory tracker. In OZÉ, write it off by marking a “sale” for GHC 0 with the correct number of units in a category called “Spoilage”, ‘Expired”, or “Inventory Write-off”.
Once you have three months of data, your OZÉ Coach can help you use the scientific method for calculating your safety stock. Just send them a message through the app. If you want this inventory sheet to be integrated into OZÉ, let us know! We build the features that you want. Happy stocking!
OZÉ is a mobile platform that helps small business owners in Africa (starting in Ghana) to make data-driven decisions to improve their performance, tap into networks, and access capital. Entrepreneurs can track their sales and expenses, who owes them money and who they owe money to, see their profits on a dashboard, send receipts and invoices, and even access a business coach. Interested? Click here to try it today!