Inventory management doesn’t begin and end with stock control. Discover how to ensure that your system takes purchasing, production and sales into account here.

Any business that buys and sells products will need an inventory management system that keeps track of when new stock is bought (via purchase orders) or sold (sales orders). And if you manufacture products as well, then you’ll also need to keep a close eye on your production process. Let’s take a look at each one in turn.

What are purchase orders?

Purchase orders (POs) are the documents you use to buy new goods from your suppliers. Often, purchase orders are preceded by a quote — an estimation of the cost of the goods you are buying, which you can approve using a PO.

A purchase order will typically stipulate:

purchase orders

  • Which goods you want to buy
  • The quantity of those goods
  • An agreed price

Once the stock you’ve ordered has arrived, the next steps are to receipt it and pay an invoice. Sometimes, you’ll receive unwanted or damaged stock, which you’ll need to return to your supplier.

This all comprises the purchasing part of your inventory management system. Remember, businesses with simple requirements might find that a simple system is sufficient. But as your business grows in complexity, you’ll find it harder to cope without something more sophisticated.

Managing purchases using spreadsheets

If you manage your inventory using Excel, for instance, then you’ll be manually updating your spreadsheets everytime you:

Spreadsheet

  1. Create and send a purchase order
  2. Receipt a new delivery into your warehouse
  3. Return stock to your supplier

Otherwise, you won’t know what you currently have on hand, or when you can expect new items to arrive. For example, another person in your company could duplicate a purchase order because they didn’t know that a delivery was already on its way.

Creating purchase orders with inventory management software

Cloud inventory systems, on the other hand, will automatically update your stock information every time you create a new purchase order. You’ll be able to receipt and return stock from within your inventory platform, meaning you always have access to fully accurate, real-time data.

They may also offer advanced functionality, such as notifying you when your stock hits a specified level, with the option to quickly create a reorder.

Supplier management

Supplier management is a hugely important — and often overlooked — part of purchasing. Your suppliers are the heart of your supply chain, after all.

It’s a good idea to keep track of your suppliers using your inventory management system: ensuring that their pricing is competitive and deliveries are made on time. That way, you’ll be able to accurately predict how much goods are going to cost, and when they’ll arrive.

Find out about how to improve your supplier management.

Selling inventory

Sales are the backbone of any business. If your inventory management system is up to scratch, your business should be empowered to sell at maximum capacity. Customers will get their orders faster, salespeople will know exactly what’s in stock, and there’ll be no stockouts on popular products.

Here’s how to set up your inventory system for effective sales.

What are sales quotes?

Sales quotes are documents you can use to give customers an estimated price for the goods they want to buy. When you sell goods, you’re taking the other side of the transaction from when you raise a purchase order. Some businesses will quote customers before they raise a PO, some won’t.

To create accurate quotes, you’ll need a system that tells you exactly which products you have on hand. You may also want to set up pricing strategies: for instance, bulk or trade discounts.

What are sales orders and shipments?

Sales orders and shipments are the internal documents you’ll use to fulfil a customer’s purchase order, ensuring that everyone involved in the sale is aware of:

  • Which products are leaving the warehouse
  • Where and when they’re going
  • Any documentation that’s required (such as a packing slip)
  • The agreed price

Unless your customer is picking up their purchase themselves, you’ll need to create a shipment once the sales order has been completed. You can also include an invoice with your shipment, so your customer has an itemised list of the products they have bought.

Your inventory system should help your staff to complete and ship sales orders as quickly and easily as possible, with full visibility over where products are and when they’ll be ready to ship.

This might sound like a simple process, but it can quickly get complicated. For example, one sales order may require multiple shipments to different locations. Or you could have to send some of the products immediately and create a backorder to send the rest when they are in stock. Find out more about order management.

Selling inventory online

Most businesses today will sell their produce over multiple channels. They might enable customers to buy via their website, Amazon, a mobile app, a B2B eCommerce store, Shopify and more. Learn more about how to master multichannel selling.

Controlling production: bills of materials and tracking

Even if you don’t consider your company to be a manufacturer, you may need to do more with your products than just buying and selling. You might, for instance, bundle lots of different goods into a single package to sell — or break down a bulk purchase into lots of different products.

However simple (or intricate) your production process is, tracking and controlling your inventory at every stage is imperative. That way, you’ll always know whether you have enough raw materials to make your product, enough finished products to match demand, enough time to meet a new order and more.

What is a bill of materials?

A bill of materials (BOM) is a set of instructions on how to create a specific item. It includes the materials, products, assemblies and even packaging that make up your finished product. Each BOM will be used in procurement, manufacturing and more: ensuring that your business can create a standardised product at a standardised cost.

bill of materials

Bill of materials example

Say, for example, that you’re a beer brewer. The bill of materials for one of your beer lines would contain the ingredients that comprise the finished product, alongside its bottle, bottle cap, label and packaging. It might also contain the steps required to create the beer from all your raw ingredients.

Multi-level bills of materials

Some products might require a bill of materials with multiple stages.

Continuing our brewery example above, let’s assume that you create a special edition selection box, featuring all the beers you make. The bill of materials for the selection box would contain each line of beer produced by your business, plus packaging. Each beer within would have its own bill of materials, giving you two separate levels.

As your production processes get more complicated, you’ll become more reliant on your inventory management system: so make sure you pick one that’s up to the task.

Tracking your production process

But how do you track your inventory as each item moves from component to finish product? One way is to group your materials as they come into your warehouse (batch tracking). Another is to use the serial number on each product to in your system (serial number tracking). Or you could use an alternative tracking method, such as barcodes or RFID.

Keeping track of your stock levels and location as goods are bought, created and sold is only one aspect of proper inventory management. To really grow your business you’ll want to see your profit margin on each product, identify areas you can improve and eliminate inefficiencies in your processes. Learn more about inventory reporting.