In the last couple of years, the biggest concern for inventory-based businesses has been supply chain disruptions. Now, the focus is on managing inventory in inflationary times with the threat of a recession looming. It’s already been reported that there’s an oversupply of cars, which likely will lead to price wars. What happens when there’s an oversupply? Less demand usually means lower prices. As quipped on PictureQuotes.com, “talk is cheap because supply exceeds demand.”
While a recession is not a certainty but surely a strong possibility, what should you be doing now to ensure your inventory meets the Goldilocks standard—not too much, not too little, but just right—in order to weather a possible downturn?
Inventory management actions to take now:
Assess your current position
According to NFIB’s Small Business Optimism Index in February 2023, inventories are down from the previous month. But how should you respond to recession risk? A Gartner survey last summer found that while nearly one-quarter of manufacturers and retailers were reducing stocks, over 40% were increasing inventory as a hedge against ongoing scarcity.
Inflation also impacts your inventory decisions. Looking ahead, you may have to pay more for your items, which could mean cost savings by stocking up now. Weigh the cost of loading up now at potentially lower prices against the threat of reduced demand and the cost of carrying inventory. This is not an easy decision.
Use an inventory management system
An inventory management system is meant to monitor your inventory, including your supply chain, and your sales activities, from picking and shipping to returns. Today’s software can simplify inventory management by tracking all necessary data to help you make good decisions. Forbes has a list of the best software for 2023. The one you choose depends on what your business is all about. For example, if you are a wholesaler, you may want to use a different product than a manufacturer or a small retailer.
Buy a crystal ball
Inventory management entails a bit of fortune telling…what will the future bring? You need to anticipate changes in:
- Customer tastes and needs
- Inflation and its impact on ordering inventory items
- Interest rates and what it means to buy and carry inventory when using financing
While no one can predict the future, it’s necessary to make educated guesses so you can properly stock your shelves and price your items right.
Final thought
Amazon founder Jeff Bezos said: “Determine what your customers need, and work backwards.”
Good inventory management can go a long way in recession-proofing your business and maximizing your profitability.
Additional resources for your inventory management needs can be found in these earlier blog posts.
