Learn how inventory management works – and how smart inventory management processes mean you can cut costs, improve profits, and keep your customers happy.
We’ll also cover how to spend less on currency conversion when buying and selling internationally, with a Wise business account.
Inventory includes all the items you sell to customers, as well as some of the things you may have on hand to help produce and retail them.
Inventory is typically split into 4 different types – raw materials, work-in-progress, finished goods, and MRO inventory. Depending on the type of business you run, you may have some or all of these inventory items in your supply chain.
For example, if you buy in and resell completed products you may only have finished goods and MRO inventory. MRO stands for maintenance, repair and operating supplies – this may be the office consumables you need to process orders, or the bags and boxes you use to pack up goods once customers buy them. However, if you make your own products for resale, you could find you have all 4 inventory types at any one time.
Proper inventory management means you always have what you need when you need it. Holding too much inventory at any one time means you’re tying up working capital unnecessarily. But having too little may mean you sell out and disappoint customers. Striking a balance is essential.
Good inventory management helps business owners hold the right stock and supplies, and know when to order in new items to keep a constant balance.
The good news is that great inventory management doesn’t have to be difficult. Using smart inventory management tools and lists you can make sure you have enough of each inventory type and item to keep you going, without overloading or running critically short.
1. Raw Materials
If you produce your own goods for sale, you’ll probably have some raw materials in your inventory. Raw materials covers all items bought for the production of goods for resale, which have not yet been used.
2. Work-in-progress(WIP)
Once you start working on your raw materials to turn them into a saleable item, they become a WIP inventory item. This category captures items in the production process which are not yet finished.
3. Maintenance, repair, and operations (MRO) goods
Most businesses will have some MRO inventory items. However, what they are can vary widely. If you run your own production, MRO items might involve spare parts and tools to keep your machines going. If you sell baked goods, this may include the cake boxes you use to beautifully package your finished items.
4. Finished goods
The final category is the easiest to understand. Finished goods are your stock, ready to sell and get into the hands of your customers.
Choose the inventory template which is better for your business, based on your specific needs and business size.
The basic excel inventory list is great for small businesses and startups. You’ll be able to add your raw materials and finished goods, and see easily when it’s time to reorder supplies. There are handy formulas pre-loaded to let you keep track of your inventory values and minimum stock levels.
Larger or more complex businesses may benefit from the excel inventory management template instead. This has all the features of the basic inventory list, but also includes space to add your vendor information so you’ll save admin time.
Check out the details below to see some of the features built into the inventory management templates to make life easier for you.
Reorder
Set your minimum stock
level, and when an item reaches that number, it’ll automatically flag as
ready for reorder.
Inventory value
This gives you the total of the item
number listed, multiplied by the item value you’ve added. You’ll be able to
see easily how much the value of your stock on hand is.
Reorder level
Use this to set the minimum stock level you can allow for
given items. Once the stock gets to that level, you’ll see a warning
notification in the reorder column.
Days per reorder
Here you can enter the product lead time so you know how
long you’ll need to wait before items you’ve ordered will arrive.
Item reorder quantity
Set this to the number of items you’ll want to
reorder whenever you inventory falls below the reorder level. Then you’ll
always be able to see when to order, and how many items to get in at a time.
There are a number of different approaches to inventory management, which work for different business types.
You may choose just in time (JIT) inventory management if it’s important to you to keep as low a stock holding as you can at any given time. Or, you may choose an economic order quantity (EOQ) approach if you want to balance out ordering so you don’t end up ordering new supplies too often. Different approaches are out there to suit manufacturing companies, too – doing some research into the principles behind inventory management is a good way to decide which method suits your needs.
No matter what approach you decide to use, inventory management is about holding the right levels of stock and supplies to make sure you can serve your customers without tying up too much cash in inventory. Having too little stock risks disappointing your customers. But holding too much is also an expensive waste, and risks products being spoiled, stolen or simply going unwanted in the end.
Using our free Excel inventory tracking tool, you’ll be able to enter in the stock and supplies you currently have on hand. By adding in details like the minimum stock levels you’re comfortable with, and the amount of time it’ll take to reorder, you can then easily see when you need to take action to balance your inventory. The templates even automatically issue a warning flag if your items are running lower than you want them to, so you’ll know it’s time to order more.
The easiest way to track your stock is to use an inventory management tool. You can get a free basic inventory list in Excel or a free Excel inventory management template right here, as a great place to start.
