Do you ever find yourself lacking something your customers want? Or have tons of products stocked that don’t seem to be going anywhere? If so, then you need a better way to manage your inventory.
Proper inventory management skills can go a long way in guaranteeing healthy stock levels and better cash flow. Keep reading as we take a look at inventory management, from what it is to how you can utilize it to run your cannabis dispensary more effectively.
What Is Inventory Management?
Inventory management enables you to know which stock to order and at what time. It helps you track inventory through the whole sales process, right from purchase to sale. This practice ensures there’s always enough stock to fulfill all your customer’s orders. It also gives you a proper warning of an impending shortage.
Once you sell your inventory, it becomes cash. That being said, although inventory is reported as assets on the balance sheet, too much of it could tie up your cash and reduce cash flow significantly.
One of the best ways to track your inventory is through inventory turnover. Inventory turnover shows you how much stock you sell in a given period. But, without a proper system in place, tracking your inventory turnover can be quite a bummer. The process is often barred with lots of human error. That’s where an inventory management system comes in.
With a proper inventory management system, you can track all your cannabis sales and inventory from a central system. The system displays all your metrics at the touch of a button. This eliminates the possibility of human error and time wastage. It also helps you stay compliant.
Tips on Achieving Better Inventory Management
1. Conduct a Regular Inventory Audit
Many cannabis dispensary owners don’t like performing inventory audits. After all, it’s very time-consuming and not that interesting. However, it’s one of the most important aspects of inventory management.
Performing an inventory audit involves two steps. First, you must count the amount of stock you have on hand. Second, you must make sure the numbers match up to the amount you have listed in your inventory management software.
The best inventory management software enables you to do this with a simple bar-code scanner. These devices feed information directly to the system, helping you save time and avoid human error.
You could also use spot-checking. This involves choosing a specific product to start with, then counting all the units manually to make sure their numbers match up to what you have listed.
With spot-checking, you assume that when you check a particular product and it matches what you have listed, all your other products match up, too. However, this method is not 100% effective and might give you inaccurate information.
2. Implement Supply Chain Management
If your supply chain is a mess, even the best and most effective inventory management strategies won’t do you any good. Supply chain management is simply the practice of monitoring and optimizing how you deal with your suppliers, delivery partners, and any other parties that come into play during your inventory’s lifestyle.
When implementing your supply chain management system, pay attention to the time it takes for all your supply chain partners to fulfill their end of the bargain. This is from the moment you initiate the process to the time the action is completed.
If you notice any lag in your receiving, shipping, or production process, reach out to that particular partner and remedy the situation. If your partners can’t improve in their roles, then it’s time to get new ones.
3. Do the ABC Analysis
Before you can start monitoring and optimizing, you need to have an inventory management system in place. One of the easiest ways to build one is through the ABC analysis. The ABC analysis separates your inventory materials into three categories:
- A: These are the items that drive the most profit, whether directly or indirectly. This includes everything from per-rolls to the most popular strains. You can’t afford to run out of these items; they are the lifeblood of your business.
- B: Your class B items are the items that don’t sell as much as class A items but still generate a reasonable amount of traffic.
- C: Class C items are the items in your inventory that are worth very little but still play an important role in your business. This includes everything from less popular cannabis products to very cheap cannabis products. You can have lots of these items in your inventory, but they don’t have much value.
When grouping your inventory items into the categories above, think about how your business would be affected if you had too much or too little of each product in storage. This will help you determine where each product should fall.
4. Do Housekeeping at Your Warehouse
If your warehouse is dirty, then you’re probably doing a bad job at managing it. A well-managed warehouse is a key to proper inventory management.
By keeping your warehouse clean and organized, you avoid costly mistakes like slow shipping times, misplaced inventory, and other similar errors. Designate different areas in your warehouse for receiving products, shipping, and order fulfillment. You should also consider color-coding the shelves for certain types of products.
5. Avoid Excess Inventory
The idea of having lots of stock in your business can be quite alluring. But, in reality, it could be working against you. Apart from tying up cash that would have been better spent elsewhere, too much inventory can strain your storage space.
The best way to avoid excess inventory is by keeping only the amount of products necessary and a little bit of safety stock to prevent you from running out. By performing inventory audits and paying attention to your sales, you can determine which items are sitting too long in storage or simply taking up too much room.
Have you ever heard of just-in-time production? JIT production means keeping the minimum amount of raw materials necessary and ordering just what you need to fulfill your customers’ needs. This allows you to free up more cash and reduce wasted space.
6. Set a Reorder Point
A reorder point is basically a pre-determined point at which you order more of a certain product. This helps you keep a healthy inventory without having to constantly monitor your inventory. With the right inventory management software, you can set a reorder point that automatically triggers when you reach a certain point.
That being said, since customer demand changes over time, you will need to adjust your reorder point regularly; a hot product right now might lose its popularity by next week. The same goes for less popular products. Therefore, you should check your stock levels to see which products are no longer selling as well. When you spot them, you should adjust your reorder point accordingly to free up more cash and space.
7. Utilize the FIFO Method
The first in, first out method means that the oldest inventory should be sold first before the newer stock is offered to customers. This method comes in handy, especially for perishable goods. By selling your oldest stock first, you ensure that you don’t end up with expired products in your inventory.
Even if you don’t sell perishable products, having products sit for too long on the shelves leaves them in great danger of going out of date when new items are made available. Also, letting old stocks sit in storage for too long puts their packaging at risk of damage. No customer wants to buy a product with damaged packaging.
8. Take Advantage of Automation
Automated inventory management systems offer accurate real-time information about your stock levels. The value of the automation system you choose is just as important as the system’s quality. If you have a low-quality inventory management system, then you’ll still have to deal with lots of inaccuracies in inventory management. Therefore, make sure you choose the best automation system for the best results.
9. Practise Safety Stock Management
Practicing safety stock inventory management involves ordering new stock beyond expected demand to prevent stock-outs. Stock-outs are mostly caused by changes in customer demands and incorrect forecasting.
10. Consider Dropshipping
If your cannabis dispensary has an online sales platform, then this method might work great for you. Dropshipping involves selling products without actually holding the inventory yourself. Instead, the manufacturer or supplier holds the product and ships it to your customers when they buy it from your online store.
This way, you don’t have to worry about the storage and shipping needs that come with stocking the product yourself.
11. Weigh the Costs of Holding the Inventory to the Value of the Inventory
A successful inventory management strategy all comes down to your ability to balance the cost of holding the inventory to the benefits you stand to gain from the inventory. Cannabis dispensaries can be especially vulnerable to miscalculation of the real cost of holding inventory. When you hold too much inventory that’s not benefiting you in any way, it’s not just the money getting tied down, but also your storage, taxes, and insurance.
Importance of Inventory Management
Ensure You Never Run Out of Products
One of the most notable benefits of inventory management is knowing the right amount of units you need in stock at any given time. If you have too many items in stock, then you run the risk of getting huge losses from expired or outdated products.
Likewise, if your stock levels run too low, then you could miss a few sales and possibly lose a few customers.
Save Money on Storage Fees
If you have too much inventory on hand, then you’re probably spending too much on storage fees, especially if you’re leasing your storage. Inventory management allows you to know which products you need and those you don’t. By employing this knowledge when ordering new stock, you get to free up more storage space, which translates to fewer storage needs.
Get Insights into Customer Behaviour
By monitoring the amount of product you sell versus the amount left in storage, you gain valuable insight into your customer’s preferences. You also get insight on peak times of purchase and the demographic that buys your products most frequently.
Additionally, it puts you in a better position to gauge the effectiveness of your marketing efforts. For example, if you notice any spikes or dips in your inventory after launching a new product, it gives you a clear picture of how effective your marketing efforts are.
Plan for the Unexpected
Although it’s nearly impossible to foretell the future, managing your inventory can help you prepare for any deficits or supply chain issues such as:
- Cash flow problems
- Delayed inventory from supplier or manufacturer
- Running out of storage space
- Large retail orders
- Unexpected stock-outs
- Growing sales channels
Improve Business Negotiations
Combining your inventory management software with batch tracking software will increase your product traceability capabilities. In time, you will get lots of valuable information that could come in handy when negotiating with your suppliers.
This information will also enable you to know which suppliers benefit your business the most and those that require improvement.
Accurate Order Fulfillment
Imagine a scenario where a customer orders a product from your online store, only for you to find out that you don’t have the product in stock. Such a scenario translates to poor customer service and, in some cases, could land you some pretty negative reviews.
If your inventory is not properly managed, you might find yourself running into such scenarios multiple times. But if you take your time to create an effective inventory management strategy, you can avoid missed deliveries and inaccuracies in filed orders. In time, you will build a good reputation that could potentially grow your customer base.
The Bottom Line
A good inventory management strategy can help you run your cannabis business more efficiently. It has huge cost benefits and can offer valuable insight to help grow your business.
But, even the best inventory management strategy won’t do you much good without a good inventory management system. Inventory management systems streamline inventory management and eliminate human error and time wastage that comes with managing your inventory manually.