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Inventory Management Tips, Part 1: Supply Chain

Inventory Management Tips

Whether you’re an Amazon seller or other small retail business owner, one of the biggest costs in your business operations is inventory. Inventory is a necessary cost of doing business for retailers of all sizes – after all, without inventory you wouldn’t have any products to sell! But many small businesses are starting to look at innovative ways to save money on inventory or otherwise manage their inventory more efficiently and strategically.

One of the most important concepts of inventory management is learning how to optimize your supply chain. The term “supply chain” might sound overly “big” or complex for a small business. But the truth is that every retail business, no matter how small, has a supply chain too.

A supply chain is not really a “chain,” it is more complex and multi-directional than that. Investopedia defines a supply chain as: “the network created amongst different companies producing, handling and/or distributing a specific product.” The supply chain involves all of the various steps and processes involved with bringing a product or service from a supplier to a customer.

For most small retail businesses, the supply chain is the network of wholesalers and other businesses that supply the inventory that the retailer ultimately sells to customers. Managing a supply chain involves managing relationships with wholesalers, managing shipping from wholesalers to the retailer (and sometimes from wholesalers to customers), processing payments and managing the overall process of getting products, paying for inventory, keeping inventory in stock and delivering purchased goods to the customer. Good supply chain management can help you minimize your expenses, maximize your cash flow and boost your profits.

Inventory Management Tips to Maximize Use of Your Supply Chain

Diversify Your Supplier Base

Do you sometimes feel like you rely too much on just a few key wholesalers and vendors to provide your business with inventory? What would happen to your business if one of your wholesalers couldn’t deliver a shipment on time, or had a disruption of their business operations or went out of business altogether?

Just like the old saying, “don’t put all your eggs in one basket,” don’t rely too much on too few suppliers. Keep your supply chain nimble by having backup plans in case one supplier cannot provide the products that you need. Make sure you are familiar with all of the major wholesalers or vendors of each product category that you sell – keep checking in with various sellers and keep testing the market to see if you can get better prices or better terms of sale.

It’s good to be loyal to suppliers that have earned your loyalty, but keep in mind that as a retailer, you are the customer for multiple different businesses, and they need to keep competing to win your business. You don’t have to be cold and heartless about it, but it’s good to keep your suppliers on their toes – don’t let them get complacent; keep your options open and always do what is best for your customers and for your business.

Use Supply Chain Management (SCM) Software

Supply Chain Management (SCM) software might sound complicated and expensive and better suited for big companies, but the truth is, more small businesses are starting to use SCM software, and there are lots of cloud-based SCM software options that enable small business owners to get just the right level of SCM support and features that work for them. SCM software can help your business track shipments, handle logistics and get data-driven insights into your supplier relationships.

SCM software is a great way to keep up a consistent overview of the state of your business’ inventory – how much inventory you need, how much inventory is in stock, which items are selling quickly or slowly, which product might need to be re-priced for a quick sale and much more.

Consider Drop Shipping

One way to reduce your inventory costs, offer more competitive prices and perhaps expand the range of products that your business sells is to use a drop shipper. Drop shipping is the process of selling products that are not currently in your inventory, and then paying a wholesaler/vendor to fulfill the order and ship the product directly to the customer. Some products can also be drop shipped directly from the manufacturer – it all depends on the product’s maker’s business and what they’re willing to do; not every company will do drop shipping but it is worth asking.

Drop shipping is a good deal for small retailers for a few different reasons:

  • Save money on inventory storage: Instead of storing all of your inventory at your business, with drop shipping, you can sell products to your customers even if those products are not on-site. This greatly expands the types of products and sometimes the size and complexity of products that you can sell – you don’t have to worry about storing, packaging and shipping the products, because that step is handled by your drop shipping vendor.
  • Maximize cash flow: Drop shipping is great for cash flow because it works in reverse of the typical retailer-wholesaler transaction. Instead of buying inventory in advance (which sometimes requires an inventory loan), with drop shipping, the retailer collects payment in advance from the customer and then pays the drop shipping vendor for the product. (The drop shipper makes money by charging a small drop shipping fee to the retailer.)
  • Save time on logistics: Instead of dealing with packaging and shipping the product to the customer, drop shipping lets the retailer handle the front-end of the transaction (marketing and sales) while leaving the back-end of the transaction (packaging and shipping) to be handled by the drop shipping vendor. This saves time and lets you focus on what you do best as a business owner – building relationships with customers and making sales.

There are a few possible drawbacks to drop shipping – sometimes the drop-shipping vendor might not have the same standards that you do for packaging, customer service or returns. So make sure to discuss expectations upfront with your drop shipper so that you can deliver a consistent and positive customer experience, regardless of where the product is shipped. Ideally, drop shipping should be a seamless experience for your customer – they should not notice or care whether the product gets shipped from your business or from your drop shipping supplier.

Look Abroad for International Suppliers

One of the underrated benefits of being a small retailer today is that it is easier than ever before to be an “international business owner” with an extensive supply chain of vendors and wholesalers around the globe. No matter what you sell in your small retail business, there are amazing companies all over the world that would love to have you sell their products to your customers. If you want to be 100 percent American Made with your inventory, that’s fine too – lots of American consumers are looking to buy local and support locally produced items. But if you want to diversify your supplier base and offer exciting products from around the world, it’s more possible than ever before to do that.

However, there are a few caveats to keep in mind when building up an international supplier base. First, make sure that any products you buy from other countries are in fact legal to import into the U.S. market. Also do your research about any companies you consider buying from – make sure they are reputable, ethical companies that are maintaining adequate standards for worker safety and environmental protection. Counterfeit goods are also a concern when dealing with international suppliers – if a price seems too good to be true, it probably is.

As a retail business owner, understanding your supply chain doesn’t have to be complicated – but it pays to spend some time doing your research and learning more about how your supply chain works as part of your overall inventory management process. Whether you use supply chain management software or just want to take a more strategic look at where your inventory comes from, there are many options to get more out of your supply chain in a way that boosts your efficiency, lowers your costs and maximizes your profits.

Do you use supply chain management software or other inventory management tools for your retail business? Which tools or inventory management tips are your favorite? Leave a comment and let us know.

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Kabbage Team

Kabbage is here not only to provide access to the small business funding you need, but to also help you grow your business through free marketing tips, webinars, tools and more. Is there something you'd like us to cover or want to get your small business featured on our blog? Send us a note at content@kabbage.com.