By J.T. Ripton

In order to grow in a healthy way, companies have to manage their product and service inventories. Managing your inventory is a tedious task, but you will suffer direct business consequences if your system results in poor management. It may lead to slow fulfillment, extended cash flow cycles, higher vendor interest rates, increased staffing needs, and unhappy customers. Managing inventory effectively doesn’t have to be expensive or complicated—it just needs to be approached in an organized way.

Avoid Overspending

The shelf space may be tempting, but too much inventory will only restrict your cash flow. A mismanagement of cash is the second biggest reason startups fail, and second only to products that don’t have a market. While a fear of being out of stock might be driving your efforts, overspending on inventory isn’t the solution. You will find you will not only have to store the items you have, but you will also have to wait for them to sell in order to get back the cash you spent upfront. You are going to have to record past sales and do your best to predict accurately on a month-by-month basis. If you are a new company with no past data to look at, investigate your competitors to get a starting point.

Track Carefully

You must track your inventory accurately, and you will find that there are opportunities to miscount every step of the way. Use an electronic inventory system to track what comes in and what has gone out. To be really efficient, link your inventory management to your point-of-sale (POS) system. Then, perform random spot checks to ensure the numbers are adding up and accurately reflect your stock.

Get Help From Your Suppliers

As you start to work more consistently with your vendors, use a supplier-managed inventory process to help generate orders automatically based on previous needs during the same time periods in previous years. Working to simplify the inventory ordering process and eliminate data-entry errors is important to most independently owned businesses, such as Amway members. This will also help small businesses cut back on seasonal inventory that is not popular during off-times of the year.

Measure Your Turnaround

In order to better manage your inventory turnover and delivery time, you need to see what you are actually doing. Check how often specific inventory is selling and then measure how long it takes from point of purchase to delivery confirmation. Make sure you eliminate the inventory that is not selling well. Work to cut down on turnaround time in order to create happier customers that are more likely to order again.

Monitor Work-in-Progress Materials

Pay special attention to any inventory that is waiting on specific operational stages to be needed. There are some materials that may be ordered in advance and should be kept out of the general product inventory to be more effectively managed. These special-case items may be needed to create other products, and a special inventory should be reserved to meet those needs when the time comes.

Back Up Your System

Imagine the worst-case scenario and then prepare for it. What happens if there is a fire in your headquarters or if your server fails? These are real-world problems that companies have to prepare for. Back up your system and make sure you have companies helping you maintain security to avoid breaches that will cost time and money.

Every company needs backups for their data—both virtual and physical. Backups could be as simple as a USB drive, an external hard drive, or a Dropbox account. However, you will also want to be very careful that secure information is kept well out of the reach of those who would maliciously break in the back door and abuse your information.

Continue working to create a better system each year. Your company will be able to thrive if you get the kinks worked out of your ordering and delivery systems. Don’t let a great product or service be held up by inventory problems.

J.T. Ripton is a freelance writer out of Tampa, who focuses on topics relating to business and technology. Follow him at @JTRipton.