If you are like the many small business owners still struggling to survive in today’s tough economy, then what you are looking forward to is an increase in demand. But the truth is that in case there is a sudden increase in demand, then you are bound to find yourself dealing with a different set of issues such as sparse inventory levels at your suppliers which in turn effects your ability to deliver the goods on time.Of course, this can be directly attributed to the economy as the suppliers cannot a strong inventory management. But this is solution if there is a sudden increase in demand. For instance, if you are anticipating an increase in demand in 2011, then it will help your business if you started working closely with your suppliers now.
You may wonder how to manage inventory then?
Some inventory management techniques are as follows:
Managing Inventory: Get a Backup
To begin with, ensure you have more than one supplier. However, don’t go overboard. Ideally, limit them to two, as it will be too cumbersome to manage supplier relationships. That said, having extra suppliers gives you room for bargaining.
Managing Inventory: Think ‘Partner’
With any important vendor, make sure that you become their favourite customer. Your goal is to encourage vendors to see you as a partner which will make them keep you on the top of their priority list. You could accomplish this by clearing bills on time, responding quickly to their queries and willing to be flexible while agreeing on terms. Refrain from picking up the phone and screaming. Instead, ask how you can work together to resolve the issue.
Communication is the key. This includes going out of your way to meet them face-to-face and build a relationship. The goodwill helps in suppliers going out of their way to fulfill commitments when the need arises.
Managing Inventory: Keep an Eye on Vendor Data
The more information you have about your suppliers’ inventory levels, the better you can plan. As part of the information-gathering process, ask your vendors to provide web access to product data. It’s unlikely that they will allow you to see cost information, but they might let you monitor how many items they have on hand.
Think about keeping in touch through phone calls and e-mail. Be sure to prioritize your suppliers and focus on a few, critical materials, rather than on an entire product line. This is especially important if your business experiences high turnover, because even a slight increase could put real pressure on the suppliers. A best practice is to break your inventory turnover down to individual products to see where potential supplier trouble spots are and address them.
Managing Inventory: Be Ready on Your End
If you are a business that offers services, then finding ways to ramp up personnel quickly can be a frequent issue. One solution to this problem is to use sub-contractors. This, however, could mean higher costs, at least in the short run. Instead, you might choose to have people on staff. If that’s the case, then it is better to develop a list of candidates to call on at a moment’s notice.
Budget for Different Scenarios
Now, back to the budget spreadsheets that need to be filled.
For optimal budget management, your best bet is to create a minimum of three budgets
- One with an aggressive forecast for increase in sales
- A second one that uses a more conservative assumption
- A third one with worst-case scenarios
During times when you cannot predict the demand, it is important to consider the effect of increased costs on the cash flow, a critical issue when demand increases, since your need for working capital will also increase.
Budgeting season is the perfect time to scrutinize vendor relationships. Your suppliers will be mapping out their expectations from the coming year and you can help them by providing your outlook. It would be good if you can share your budget and the variety of scenarios you might face to see if they can handle different levels of demand. Many businesses fail as they couldn’t meet the demand. There is no reason for you to panic, if you plan ahead.
Management of inventory and inventory planning is essential to curb. Spend less; it will help you in your bad times. Knowing the importance of inventory management and budgeting will allow you to have a control over the unnecessary and helps you spend wisely. You gain flexibility through your budget.