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8 Expert Tips to Simplify Inventory Management and Boost Cashflow

Inventory management can make or break your business.

Fact: sitting on inventory ties up a lot of cash. Cash that you could otherwise spend on more product to sell to customers, or on sales and marketing.

That's why getting inventory management right is crucial if you want to grow your business.

Here are eight actionable tips to help you improve your inventory management for your wholesale distribution business.

1. Set Minimum Levels for Stocked Items

Do you know when your products run low? Do you have an alert in place so you can order more?

Make inventory management easier by setting “minimum stock levels” for each of your products. This is the minimum amount of product that must be on-hand at all times.

Set an alert in your inventory management system, so when your inventory stock dips below minimum level, your system lets you know to order more.

Although it requires some research and decision-making up front, setting minimum levels will simplify the process of ordering. It helps you make faster decisions, and allows your staff to make decisions on your behalf.

Bonus tip: good small business inventory management software will take the guess work out of setting minimum levels. It will analyse your historical purchasing data and seasonal trends to automatically calculate preferred stock levels.

2. First-In First-Out (FIFO)

“First-in, first-out” is a trusted principle of inventory management. It means your oldest stock (first-in) gets sold first (first-out), and not your newest stock.

While it’s particularly important for perishable products, it’s best practice for non-perishables.

Here’s why: If the same boxes are always sitting at the back, they’re more likely to get worn out and dated. Packaging design and features often change over time, making some older products obsolete.

Bonus tip: FIFO requires an organised warehouse operation. Make sure your staff add new products to the back, and old products stay at the front.

3. Manage Relationships

Your relationship with your supplier plays a big part in successful inventory management because you need to be able to adapt quickly to changing demand. Not to mention, you want to get the best deal.

You’ll be surprised how many arrangements are negotiable. Don’t be afraid to ask for a lower minimum, or for a special discount to buy a larger quantity of a top seller. Remember suppliers typically love bulk orders.

Suppliers also love it when you give them forecasts of how much you will purchase over the next 12 months.

Also, if you can swing it, it’s a good idea to offer suppliers full lead time orders, so you’re not always asking for urgent deliveries.

Bonus tip: Relationships are a two-way street. Ask them to let you know when a product is running behind schedule. A good small business ERP can help with that, so you can log in to get up-to-date information from your suppliers on how your orders are tracking.

4. Contingency Planning

When you’re dealing with so many logistical elements in your wholesale distribution business, it’s not a matter of if problems occur, but when.

Have you experienced any issues like these common problems?

  • Sales spike unexpectedly and you oversell.
  • You run into a cash flow shortfall and can't pay for product you need coming into a peak season like Christmas.
  • A miscalculation in inventory means you have less product than you thought – or far too much.
  • Your manufacturer runs out of your product and you have backorders to fill.
  • Your manufacturer discontinues your top selling product(s) without warning.

You need to identify these risks up front, and prepare a contingency plan. What steps will you take to solve the problem? How will this impact other parts of your business?

Bonus tip: Diversity can reduce risk: try to diversify both your suppliers and your product lines.

5. Regular Auditing

Regular reconciliation is vital, and there are several methods:

  1. Physical Stocktake
    This means counting all your inventory at once, usually once a year. This can be disruptive and time consuming. And, it can be difficult to pinpoint discrepancies when you’re looking back at an entire year. Consider buying or renting a stocktake scanning solution to speed things up.
  2. Spot Checking
    Spot checking throughout the year can supplement a big annual stocktake. This simply means choosing a product or area in your warehouse, counting it, and comparing the number to what it's supposed to be. It’s great for problematic or fast-moving products.
  3. Cycle Counting
    Instead of doing a full physical stocktake, some businesses use cycle counting to audit their inventory. Each day, week, or month a different product is checked on a rotating schedule.

6. Prioritise Your Most Valuable Stock

Some products need more attention than others. Use an ABC analysis to prioritise your inventory management.

Go through your product list and add each product to one of three categories:

  1. High-value products typically with a low frequency of sales: requires high attention.
  2. Moderate value products typically with a moderate frequency of sales: requires medium attention.
  3. Low-value products typically with a high frequency of sales: requires low attention.

7. Match Your Demand to Your Supplier Lead Times

An important part of good inventory management comes down to accurately predicting demand and matching this to your supplier lead times.

Make no mistake, this can be tricky to get the balance right. But you can make informed decisions based on data rather than ‘gut feel’ if you have access to the right information.

8. Seamlessly Integrate Your Financials

When you order a product, you want that to be recorded in your financial system twice - both in the general ledger as an account payable and as a new asset.

If your inventory management software is integrated seamlessly with your financials, you won’t have to worry about entering the same information twice. It will automatically update the general ledger every time you buy or sell products.

Bonus tip: A small business cloud ERP all-in-one solution can help you harness all of this, so you can optimise the fully integrated system across your entire operation to grow your business faster.


So what’s next for your inventory management?

Is it time to take control of your inventory management and stop losing time and money? Choose the right inventory management techniques for your business, and start implementing them today.

A cloud ERP platform for growing SME’s can make your inventory management easier. It gives you a “single source of truth” so you can see sales orders, orders to fulfil, stock on hand, back orders and shipment status. You will be able to see what’s going on across your business, so you can proactively make the right decisions and boost your sales.

Want to see how our inventory management software can help you simplify your inventory management, free up cashflow and grow your business? Get in touch to start a conversation today.

Also get your free copy of our eBook - The Ultimate Guide to Inventory Management for more ideas, tips and tricks on improving your warehouse efficiency & profitability. 

Download the ultimate guide to inventory management