How much inventory should a jewelry business own and how do you manage it?
Inventory management is a process of keeping track of your stocked jewelry, their weight and dimensions, number of pieces by attributes and variations, and location. An efficient and effective inventory management is critical to your business because it helps you minimize the holding costs by knowing when to replenish them and when to buy materials to manufacture them. Needless to say, a negligent or inappropriate management of inventory can lead to loss of revenue from potential sales that are not met because of failure to replenish the pieces when necessary or loss of more money for overstocking leading to unsold inventory.
There are many costs – some are hidden – involved in negligent inventory management (or the lack thereof) . But these costs can be avoided with the right inventory management techniques. In this post, we’re going to talk about the costs involved in sloppy inventory management, the benefits of efficient inventory management, and the techniques you could apply for a healthy supply chain.
How Does a Systematic Help Your Business?
It saves you money by avoiding dead stock or obsolete inventory
Dead stocks are items that remain unsold when it should’ve been sold already and cannot be sold anymore. In the jewelry industry, especially in fashion or costume jewelry trade, dead stocks may comprise of pieces that had gone out of style or season. It becomes irrelevant to the market; therefore, its value declines.
Not all hope is lost, though. There are numerous ways to get rid of dead stocks if it’s an idea you’re open to. For example, you can offer free shipping and discounts to shoppers to offload some stocks to them. Ensure that discounted items are visible the moment shoppers enter your site in order for them to get attracted to it even though they have other items in mind. This is a hidden cost commonly ignored by business owners, so pay attention. The fact that those items are offered on a huge discount means that you won’t make the profit margin you initially planned had it been sold at its expected cost.
It helps you save on inventory storage costs
Inventory storage costs fluctuate depending on how many items you’re storing and how fast they’re sold. If your jewelry pieces are difficult to sell, your inventory storage costs could add up. For instance, if you’re selling jewelry on Amazon and using Fulfilment by Amazon (FBA), your inventory storage fee will depend on the size of your product when properly packaged and it must be in accordance with Amazon’s product preparation requirements.
These requirements include instructions for jewelry pouches, boxes, and protective bags for high-value jewelry. Monthly inventory storage fees are charged per cubic foot and the costs may be subject to seasonal variations. Do note that long-term storage fees for items that remain unsold after a year are charged on top of the monthly inventory storage fee. This shows that your inventory storage cost goes up for every month of unsold jewelry piece.
In the end, you’ll end up paying more for storage when you could have diverted that money towards your business growth. This is also true for independent jewelers who may have rented spaces to warehouse their items. You also have to consider unexpected costs that may arise such as the costs involved as a result of sneak theft and/or internal theft. Overall, setting an inventory goal accompanied with the right budgeting process would help you avoid any of these unnecessary financial burdens.
It leads to improved cash flow management
A strong inventory management system highly likely leads to a strong positive cash flow. This is an indication of the critical relationship between your inventory and your cash flow. When you have overstocked on unsold items, it interrupts what could have been a healthy flow of cash into your business, not to mention the additional expenditures that may come with overstocked supplies.
The same applies when you have miscalculated the demands. For instance, if you only had enough supplies to make 10 pairs of ‘cool-girl’ pearl earrings, but the demand was two times higher than that, you missed out on making larger profits, which reduced your inflow. Hence, a systematic inventory management prevents you from hurting your cash flow – not forgetting that a strong, positive cash flow is a good indicator of a healthy business.
6 Essential Techniques to Maximize Your Performance
1. Organize your jewelry pieces and label it properly
The first step to an efficient and effective jewelry inventory management is to organize all your stocked products and labeling it properly in a manner you’re most comfortable with. Don’t forget to assign a barcode and/or a stock keeping unit (SKU) number to each item to help you track inventory easily. This will also keep you from overstocking and make spotting missing items a breeze. Once you’ve assigned a SKU number, organize, track, and manage your inventory according to any of the classifications you’re most agreeable with below.
- by category
- type of piece
- item variations
- other classifications that make sense in your jewelry business
The key in this stage is to organize using as much accurate product data as possible not only to locate items easily, but also to avoid or make uncovering and investigating errors without difficulty.
2. Use photos to have an impeccable reminder of your stocks
It goes without saying that assigning a photo for each stocked item is crucial to effective inventory management. After all, our brains process images 60,000 times faster than text; hence, stock photos are an exemplary approach to visual inventory tracking.
When using visual reminders, it is important to photograph each stocked jewelry piece with utmost precision and clarity in order to have a real-life representation of what you have on hand, especially with pieces that are almost alike. It helps avoid confusion on your end and offers relief knowing that the items you’re looking at are the actual products and not just a close variant.
Use your GemLightbox (if you have one) to capture a precise representation of your stocks. There is no better or faster way towards studio-quality stock images than this device can offer. You’ll get to capture jewelry images by simply plugging it in, positioning your pieces inside the lightbox, and using your smartphone to capture.
The biggest benefit of all is the fact that you can capture as many stock images as you want in such a short amount of time without compromising quality. This is a great time saver, especially for all-around entrepreneurs and those who may not have adequate photography knowledge or without sufficient financial resources to hire professional photographers. The GemLightbox requires no technical training or grand photography setup, so you can start shooting anytime, anywhere.
See sample photos below.
3. Conduct an ABC analysis
The ABC analysis approach is one of the most popular techniques in the field of inventory management. What it does is to help business owners better define and identify the areas of sales and/or manufacturing that bring the most profit.
To track and manage inventory using this approach, jewelry business owners, like yourself, must first classify your stocks by profitability where Group A inventory accounts for 80% of revenue, Group B inventory accounts for 15% of revenue and Group C for 5% of revenue. Once the categorization process is complete, your supply manager must then strictly control your Group A inventory, ensuring that all stocks under this class are secured in a safe storage area, and that stocks are always available. The control reduces in Group C, so avoid overstocking in this area, while Group B inventory stands in the middle and might go towards Group A or C in the long run; hence, proper monitoring and data recording are required.
The key benefit of this technique is the opportunity to identify hotspots by knowing the worst and best-selling items in your jewelry collection.
4. Know the hottest and latest trends
As we’ve mentioned at the outset, obsolete inventory is often a result of unsold items for reasons that they may have gone out of style or season. To avoid deadstocking, ensure that you’re updated in the latest and hottest trends in the jewelry industry.
Keep abreast of the latest trends in the field by going to different jewelry shows and exhibits near you, checking out industry-related magazines regularly, reading jewelry-related blogs, and attending other jewelry-related events. By doing so, you’ll get to feel the pulse of jewelry connoisseurs and identify designs and styles that would sell.
5. Have a contingency plan
Did you oversell your stocks? Did you have a cash shortfall or have miscalculated your inventory?
All of these issues can cripple a business, especially when it catches you unprepared. Problems are inevitable in a dynamic business environment with changing consumer behavior patterns. It is better to analyze your internal and external business environment and come up with a contingency plan to alleviate the risks and minimize the impact of those risks on your jewelry business. Get a pen and write down the steps you’re going to take if those problems arise, so you won’t have to panic when they do.
6. Audit regularly and don't forget your annual physical jewelry inventory check
Audit your stocks regularly to ensure that your actual products in stock match the facts in your reports. Additionally, you also have to conduct an annual physical inventory check by counting all the stocks you have; it’s tedious, but not only does it help in your accounting and taxation process, it also helps you uncover issues that you may not have known when relying on your software reports. From here, you’ll know whether you need regular unscheduled spot checks to investigate problems that may have risen after your annual inventory check.
An effective inventory management plays a crucial role in a healthy business. It reduces costs, helps you identify sales patterns and forecast future sales. Indeed, a thriving and profitable business starts from managing your jewelry inventory.
Can you tell us your fast-moving and slow-moving inventory? If not, it’s time to abandon your current inventory management system. Pick the right techniques, and say goodbye to your inventory management woes!