Inventory Management
Term #43
Tracking, ordering, and maintaining inventory. Too much means cash tied up. Too little means stockouts.
In practice
ABC Analysis: A = 20% of products × 80% of revenue — track daily. B — weekly. C — monthly.
Common misconception
'More inventory means more security.' Excess inventory costs: storage, insurance, tied-up capital.
How to fix it
Run ABC analysis: export 12 months of sales, sort by revenue, divide into A/B/C.
Example
A camping store had $50,000 in stuck inventory. ABC analysis revealed 15 SKUs generated 78% of sales. Clearing the other 120 SKUs freed up $39,000.
Priority
Do an ABC analysis today. 2 hours that can change purchasing strategy.
Related terms
Keep learning. Metrics that touch the same area:
- Lead TimeOperationsThe time from ordering with a supplier to receiving inventory. Critical for calculating the reorder point.
- Demand ForecastingOperationsUsing historical data to predict sales volume. Enables ordering the right amount of inventory at the right time.
- Cash FlowFinanceThe movement of cash in the business. 'Profitable on paper, broke in the bank' — a common problem in growing stores.
- SKU – Stock Keeping UnitOperationsA unique identifier for each product variation. The basis for precise inventory management.
- StockoutOperationsA product unavailable for shipping. Immediate lost sales plus damaged trust.
- DropshippingOperationsSelling without holding inventory — a supplier ships directly to the customer. Low margin (5-20%), no quality control.
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