Entrepreneurs & SMBs: Optimize your order and inventory management to help you bounce back in times of crisis
How can you reorganize your sales and purchasing processes as well as your inventory management to ensure your business goes the distance?
The current global health crisis has had a number of economic consequences that are sure to cause major changes in the way we consume and distribute goods.
In these difficult times, entrepreneurs & SMBs often find themselves on the front lines. Reduced activity, supply issues, cash flow problems – entrepreneurs have a number of obstacles to overcome.
This said, the strength of a small business lies in its ability to adapt. Though the coming months may be difficult, speed, professionalism, organization and creativity will help your business become more resilient in these difficult times. Times of crisis can also be times of new opportunities.
Some businesses are more affected than others, depending on their sector and distribution model. Most governments have implemented measures to help everyone get through the emergency.
The next step is to revise and update your operations and methods with a comprehensive analysis of your business. For businesses selling goods, there are things that can be done to help improve sales models, streamline the customer/billing cycle and inventory management, and make the most of new opportunities. With this in mind, we have identified some best practices to maximize your chances of weathering the storm and bouncing back as quickly as possible.
1. Turn your inventory into your secret weapon
Inventory management is even trickier in times of crisis, making it a key area for change. Whatever the size of your business or your sector, don’t underestimate the impact of good inventory management and optimization.
Here are a few recommendations that you can implement quickly during this period:
- Analyze your existing inventory: first, you need to know your stock inside out: product references and categories, quantities, storage locations. A detailed inventory will give you good visibility on what you already have.
- Determine the value of your inventory: this next step is essential, because your inventory is essentially trapped capital. It increases your WCR (working capital requirement) and depletes your liquid assets. A thorough assessment will give you some insight into what changes need to be made.
- Calculate your costs of goods sold and identify items with a higher or lower margin: the profitability of your business is critical, so it's important to be able to identify the most cost-effective products and build your sales strategy around them.
- Reduce your dead stock: unsold items weigh your business down and generate unnecessary additional costs. Promotional offers or even limited time only clearance sales can help offload that inactive inventory fast.
- Revise your product portfolio: along with identifying your dead stock, determine which items have a high turnover and which are your bestsellers. Now is the time to refine your range of products, to streamline your offer and focus on selected products.
- Check your product traceability: some businesses have a legal requirement to trace their products. Implementing batch or serial numbers for hazardous products, perishables, or medication ensures permanent traceability and quicker response times.
- Organize and clarify your product management: in times of crisis, operations need to be faultless. When things are back on track, a good business organization will make all the difference.
• If you haven’t created your stock keeping units (SKUs) yet to ensure better traceability, now is the time! Creating product categories can also help with your analyses (e.g. accessories, clothing, organic, etc.).
• Setting up a barcode and scanner system could also go a long way toward speeding up your ordering process.
• Finally, if you have a big enough warehouse or storage area, why not create bin locations to make it easier to process products for shipping?
2. Optimize and automate your sales management
Once the economy is back on track, the way you handle sales will be more important than ever for your business getting back off the ground swiftly and efficiently.
Reviewing your sales and order processes means:
• Reducing the risk of mistakes and maintaining good customer relations
• Improving profitability and productivity
• Saving time and getting back to your business’ core activities
• Bringing money in faster
How to go about it? Here are a few things that are easy to put into practice:
- Sort your product catalog: as we’ve mentioned already, you can review your product base, classify and analyze your bestsellers - and don’t be afraid to do some housekeeping! Or you can go even further and create product kits or promotional offers. You can speed up your availability by prepping generic versions of your products which can then be customized as soon as an order comes in – this process is called delayed differentiation.
- Automate your business processes: Say goodbye to those unmanageable spreadsheets! Optimize your operations and your sales cycle by automating and centralizing all your data and orders into one system. That way you can turn your estimates into sales orders and invoices in the blink of an eye and without mistakes.
- Maintain your relationships with existing customers: they are key assets to your business. Sharing your company news and updates with them means they will think of you when the time comes. To keep relationships going, review your customer database, update their information, addresses, emails, etc. Centralize and categorize the details and draw up different sales terms to reward your best customers and encourage customer loyalty.
- Create sales opportunities: think about the alternatives you can implement to boost your sales. Here are a few ideas:
• Offer goods on consignment: with this system, a vendor can offer your products in their store, but they only pay you once the products have been sold. Your products get better exposure and it is less risky for your customer to offer your products.
• Deploy some marketing strategies: add some bells and whistles to your products to make them more attractive and competitive. Promotional offers, and attractive packages such as a batch with a free gift or a kit with a free POS display, can also facilitate sales.
• Try out new distribution channels: omnichannel marketing is particularly beneficial during a crisis as it helps diversify your sales methods. Consider new ways of selling: e-commerce, trade shows, sales representatives, clearance outlets, stores, pop-ups, marketplaces, etc.
• Create detailed sales reports: identify the best distribution channels, sales outlets, sales representatives, customers, products... In short, take a look at your key performance indicators so you can concentrate your efforts in the right place, at the right time.
- Work closely with your teams: a motivated, well-equipped team is an essential asset for your business.
• Adopt tools that are user-friend and that will help your employees become more efficient and better serve your customers.
• Train your team in the best sales practices using mobile devices.
• Create a centralized workspace for each employee with personalized access to their data.
3. Review your purchasing processes
Inventory plays a critical role in the longevity of your business. As we explained above, it eats into your liquid assets and increases your WCR. It is therefore essential to manage your purchasing to optimize your stock levels and costs. But this doesn’t mean you should stop buying - being under-stocked could result in lower sales and unhappy customers when you go back into business.
Here are seven recommendations for improving your purchasing of goods during the crisis and post-crisis period:
- Manage your existing purchase orders: review your pending purchase orders, whether they are pre-orders, partially received orders or orders you’ve received but not yet paid for in full. Work with your suppliers to modify or cancel certain orders or stagger delivery. This is also a good opportunity to negotiate your payment terms and scheduling.
- Analyze your current production: if you’re a designer or producer, maybe it's time to overhaul your manufacturing process. It could be a good opportunity to cancel or reschedule some scheduled manufacturing, and consequently adjust your purchase of raw materials. As far as possible, try to reduce production times as well, in order to minimize your work-in-progress.
- Try to manage your inventory on a just-in-time basis: the aim of this method is to speed up stock rotation. This means that you reduce the time between receiving products and shipping them back out to customers as much as possible. This, in turn, cuts your storage costs. This may entail additional delivery costs, however.
- Avoid running out of stock of your key items and products with the biggest margins: these products are essential for the longevity of your business.
• Calculate your reorder point: often used with the just-in-time model, the reorder point method consists of defining a certain stock level for each product which once reached will trigger a reorder with your supplier.
• Create notifications for when stock levels get too low: if you use inventory management software, you can program alerts to notify you when your stock levels get low. You can then place an order with your suppliers.
- Opt for drop shipping deliveries: products are shipped directly to your customers from your suppliers, so you don’t need to store the products that you sell.
- Evaluate your supplier base: in times of crisis, depending too heavily on a few suppliers can be risky, as some may no longer be delivering or have had to close their doors. It might also be wise to choose local distributors. This will help you avoid delivery issues and support local businesses. Local solidarity is often appreciated when times are hard and could become a competitive advantage. Ensuring delivery of flagship and high-margin products is also essential.
- Optimize your purchasing: finally, we recommend trying to minimize the total annual cost of the goods you have in stock. You need to define the optimal point between order acquisition costs and inventory carrying costs. To do this, you can use the EOQ (economic order quantity).
Act now to help you bounce back!
Now is the time to take action to ensure you survive the crisis and help you get back on track faster once it is all over.
Now, more than ever, your cash flow is the key to your success, so you need to monitor your WCR (working capital requirement) closely. Make sure you don’t tie up too many resources in your inventory, which is the biggest threat to WCR for trading companies. Inventory and order management software will help you manage and monitor your inventory efficiently and accurately.
Handling customer receivables and supplier payables is also essential for optimizing your WCR. Choose your suppliers carefully and organize your purchasing. On the customer side, automating your order processing and incoming payments will improve your order to cash process, so you will be paid quicker. Vital for a healthy cash flow!