Whether they’re selling items to raise money, giving them away to those in need or using them to provide important social services and programs, nonprofit organizations must responsibly manage the physical goods they acquire, use and distribute. After all, donors want to know that their contributions are being properly managed and effectively deployed, and that nonprofit staff and leadership are always looking to maximize their impact. Good inventory management is one way to support all of these worthy aims. The less time and money nonprofits need to spend on tracking and managing inventory, the more time and resources they can devote to their causes.
What Is Nonprofit Inventory Management?
Nonprofit inventory management is the process of acquiring, storing, distributing and tracking physical items for nonprofit organizations, which can be complicated by quality control and managing donations. In the for-profit world, it’s usually the case that a company is making and/or buying inventory to sell at a profit. With nonprofits, the range of possible models is wider.
In addition, nonprofits may store inventory to sell at cost, at a loss or even give away. A food bank’s main inventory, for example, is intended to be distributed to a community for free, the goal being to fight hunger rather than earn revenue. But it is still prudent to manage inventory carefully so as to make the most out of every donated canned good and dollar that comes in, while setting reasonable expectations and knowing what kinds of items to request from donors.
Key Takeaways
- Many inventory management techniques used by for-profit companies work for nonprofits as well.
- But nonprofits have different priorities and tolerance for risk than for-profit companies, so they need to take care with regard to how they adapt for-profit methods.
- No matter the nonprofit’s mission, it can benefit from inventory management software.
Nonprofit Inventory Management Explained
Nonprofits have specific inventory goals. Inventory can be sold, given away or used to help people, but, in all cases, the main idea is for the items to be used in service of the nonprofit’s goals. Sometimes that occurs in an ancillary way, such as a museum gift shop that sells products to raise money for the museum (its core mission). Other times, it’s directly tied to the nonprofit’s core mission, such as rescue operations in the event of a disaster.
But whatever the ultimate use case for the inventory may be, nonprofits can benefit from implementing many of the same best practices used by for-profit companies to manage what they have. Occasionally, these practices will need to be adapted — for example, for-profit businesses don’t source inventory by donation — but the underlying principles, methods and technology can be similar or identical. In that sense, nonprofit inventory management is less a field of its own than it is a more diverse application area for already refined practices.
Examples of Nonprofit Inventory
There are many ways to segment types of nonprofit inventory, and the items within each category are at least as broad as they are in the for-profit context. To start out, it’s helpful to think about the types of nonprofit inventory in terms of how the goods will eventually be used. (For the purpose of this article, we won’t be talking about tracking inventory intended for internal use, like office supplies; those are handled in much the same way in all types of organizations.)
- Inventory to be sold for profit: Yes, even nonprofits sometimes sell inventory to make money. For example, the museum mentioned above may be a nonprofit with a mission to research, preserve and educate the public about history, but the gift shop within it may be designed to support the museum’s broader mission by selling relevant merchandise and souvenirs.
- Inventory to be given away: Some nonprofits have a mission to give items away. Food banks donate food to hungry people. Toys for Tots gives toys to toddlers. Dolly Parton’s Imagination Library mails free books to young children until they begin school. But just because inventory is being given away, that doesn’t mean it’s not valuable or worth tracking carefully. With only so many cans of food, toys or books to distribute, a nonprofit wants to make sure each one goes where it will do some good. Items given away can present inventory management tracking issues if there’s no “transaction” or “point of sale” to record how an item leaves the nonprofit’s possession, and some might ask, “Why bother, if it’s free?” But knowing what’s going out the door when and for what purpose is still extremely helpful to a nonprofit, both in the moment (knowing their current inventory levels) and long term (being better prepared and even improving eventual impact).
- Inventory with multiple price points (including continuous pricing): Some nonprofits will sell items at different price points to different people. For example, a nonprofit focused on helping a particular community may offer subsidized or free goods or services to that community, while charging something closer to the market rate to the general public. Some nonprofits also have items they sell at “pay-what-you-want” pricing, hoping that those most able to pay will contribute something to keep the operation afloat.
- Inventory to be used by the nonprofit to help people: Some nonprofits operate under a model wherein the inventory needed to help people is used to deliver important services to the communities they hope to help. A free art program for underprivileged children, for example, will need supplies, much of which will be used by the kids, but ownership of the supplies will remain with the nonprofit until they’re used. Likewise, a nonprofit that provides rides to medical appointments for senior citizens will need vehicles and fuel. These organizations can still benefit from many inventory management tools and best practices to streamline their operation.
Importance of Nonprofit Inventory Management
Inventory management can often be overlooked in the nonprofit world, especially by organizations that associate it with big business and relentless profit-seeking. But the truth is, good inventory management saves time and money, minimizes mistakes and enhances trust — goals that are especially important to nonprofits. For example, a nonprofit that relies on in-kind donations may make it a priority to use as many donated items as possible to maximize their impact, while a for-profit company may not mind having plenty of leftover or discarded items as long as the most profitable move.
Other positive impacts of good inventory management can be favorable to a nonprofit’s mission, as well, such as giving funders confidence in the organization’s processes or being able to track a wide variety of items to ensure more diversity in supply when compiling items from many individual donations.
Solid inventory management can also yield other benefits, ranging from the immediate, such as knowing how much of what you have and where; to the midterm, such as planning for changes in demand and knowing when to start looking to replenish items; to the long term, such as collecting data from which trends and lessons can be gleaned.
Challenges of Nonprofit Inventory Management
The challenges nonprofits face in inventory management are similar to those found in a for-profit inventory management setting, but, in some cases, nonprofits may experience the obstacles in a unique or particularly acute way. Here are some areas that nonprofits find particularly challenging, and why they may be more complicated to resolve than those encountered by their business world counterparts.
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Limited Budgets for Inventory
Nonprofits rarely have the resources to do everything they want. In the face of tight constraints and unexpected variance — for example, the whims of one big donor or government legislator could cause a sudden and substantial change in either direction — getting the most out of every resource can have a meaningful influence on an organization’s effectiveness. In addition, some ways to access capital are out of reach for nonprofits, such as the ability to borrow against future sales when faced with a large spike in demand.
Sometimes a nonprofit’s budget is correlated with need. In the case of a disaster relief effort, donations tend to spike; international Red Cross organizations can expect an uptick in fundraising after widely publicized disasters affecting lots of people. But in other instances, such as a bad economic climate, the need for help remains strong, but donors typically contribute less.
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Complex and Diverse Inventory Items
When a grocery store is running low on canned black beans, it places an order for a large quantity of identical cans to restock. If a food bank lists “canned black beans” on its website as one of its most needed items, however, it’ll wind up with donations of cans from different brands, in different sizes and with different attributes (e.g., low sodium vs. regular or pull tab vs. requiring a can opener). Relying on donations or opportunistic purchasing can lead to a more complex, diverse inventory management environment than is faced by businesses with consistent suppliers.
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Unpredictable Demand and Fluctuating Inventory Levels
Forecasting demand and inventory availability can be particularly tricky for nonprofits. On the demand side, many nonprofits address problems that people don’t plan on having. A car manufacturer can run a survey and ask about people’s intent to buy a new car; it’ll ask questions about the state of their current vehicle, if they’ve been researching a new car purchase, what they want in their next vehicle and more. But a free medical clinic or food bank won’t have the same success asking people if they plan to lose their job and/or health insurance next year.
Predicting demand often requires an assessment of broader trends that can be hard to forecast. For nonprofits without a regular supplier of, or regular budget for, inventory, its inventory levels can easily fluctuate. While a for-profit might use a reorder-point formula to calculate when to place new orders, a nonprofit might have to wait for deals from a supplier, financial support to come in or donations to arrive. But shortages aren’t the only issue nonprofits face; sometimes events will cause donation behavior to swell, and they need to be able to store all of the canned goods they’ll get around Thanksgiving or all the clothing donations they’ll get when a major hurricane displaces thousands of people.
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Limited Human Resources and Expertise in Inventory Management
Many nonprofits lack the typical recruiting channels into pools of inventory management expertise — but the situation is improving. Aside from a societal trend of people of all skill sets looking for more meaningful and rewarding work, inventory management expertise is now easier to acquire — in the form of software. With the right tools and training, nonprofits will be able to see a good return on their investments in time and resources.
Strategies for Effective Nonprofit Inventory Management
While inventory management can be a thorny problem for nonprofits, there’s no need to reinvent the wheel or figure out everything on the fly. Many strategies and best practices that have worked for other nonprofits, and even for for-profit businesses, can work for another nonprofit, and being familiar with the toolkit can give organizations a big leg up on tackling their inventory issues. Let’s talk about a few of the more useful strategies.
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Conducting Regular Inventory Audits
Auditing inventory on a regular basis may seem like a time-consuming headache, but the information it yields can be invaluable, especially if there’s a breakdown in the inventory management process. In some cases, an audit could reveal simple errors in a nonprofit’s recordkeeping, such as typos or information that never made it into the system. In other cases, auditing can reveal expired inventory or inventory leakages due to theft, fraud or breakage.
Of note, certain nonprofits may be required by law to perform audits on a regular basis, depending on the state in which they operate, how much funding they receive and where the funding comes from.
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Adopting an Inventory Control Policy
Inventory control policies codify practices for inventory management that ensure consistent application of methods across an organization. Data recorded in the same way allows for better inventory analysis and management, and it can be particularly helpful when staff has limited experience dealing with inventory management issues. A clearly written, easily followed and sufficiently detailed policy will reduce the need for one-off improvisation that might create questions later on.
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Implementing a Just-in-Time Inventory System
Just-in-time (JIT) inventory means obtaining inventory when it’s needed, without having a lot of excess supply lying around. This reduces unnecessary storage costs, doesn’t tie up money in inventory not yet needed and ensures that a high percentage of inventory is used before new items are needed. For-profit companies have long practiced just-in-time inventory management to boost their profitability and efficiency.
For nonprofits that want to make the most of every item, JIT is attractive, but it comes with substantial risks; therefore, they must weigh the pros and cons. JIT means not having much in the way of reserves on hand, so a nonprofit must consider how likely or problematic a disruption could be. A museum gift shop with limited space can reduce its carrying costs with JIT, with only mild consequences should it temporarily run out of an item, but what happens when a nonprofit that provides disaster relief experiences a disruption in its supply chain while it’s trying to respond to a catastrophe? The consequences could be dire.
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Building Partnerships With Suppliers and Donors
“Build strong partnerships and good relationships with suppliers” is a common piece of business advice for inventory and supply chain managers, but it’s absolutely essential for nonprofits. Most donor-funded nonprofits know they need to invest in donor relationship management, but supplier relationship management can be an overlooked area, especially by smaller nonprofits. At a basic level, a good relationship with suppliers improves the flow of information — the more they know about the nonprofit’s needs, the more likely they can give good advice or provide advance notice about deals and new offerings. Suppliers can even become donors, through contributions or preferential pricing. Food banks, for example, can usually buy groceries cheaper than consumers can — sometimes because they have good relationships with suppliers that want to support their mission.
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Using Inventory Management Software
The power of software to track and manage inventory across time and geography is unparalleled and constantly getting better. A basic inventory management software system can help a nonprofit assess how much inventory it has and where it is at any given time, while advanced features, such as demand forecasting and integration with devices like barcode scanners, can update inventory levels in real time and help predict demand for more items. But software isn’t just useful in the moment and for looking ahead; analysis of the data it captures can be the key to improving operations and building on core competencies.
What Is Nonprofit Inventory Management Software?
Nonprofit inventory management software is exactly what it sounds like: software that helps nonprofits manage their inventory. In broad strokes, it’s very similar to for-profit inventory management software, in that it keeps track of inventory, forecasts demand, records data for analysis to improve operations and flags deviations and issues before they become major problems. But inventory management software for nonprofits should also provide functionality tailored for their specific needs, such as handling donated inventory or integrating with other nonprofit software functions.
Benefits of Inventory Management Software for Nonprofits
Some of the challenges described above can be at least partially ameliorated with inventory management software, and many of the strategies discussed are best implemented in conjunction with software-driven inventory management. While each organization will have its own unique list of pros, here are some of the most common benefits that nonprofit organizations might expect to materialize.
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Improved Efficiency and Productivity
Software can do in an instant what used to take humans hours or days to do, and with high accuracy. Even comparing specialized software to general software yields major advantages in efficiency — for example, the smallest of nonprofits may initially do fine managing everything by spreadsheet, but as they grow, the cost of adding functionality and training others to use their proprietary Excel workbooks can quickly become a major drag on growth and productivity, neither of which they can afford to sacrifice. Inventory management software will transition staff attention from merely gathering information to using the information to make better, faster decisions.
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Accurate Inventory Tracking
Software excels at performing mathematical calculations perfectly every time. If the data accrued by inventory management software is accurate, the system will be able to tell the nonprofit where each item is, what’s on the way, what’s in progress and what’s recently gone out the door, with alerts set up should anything go awry or levels get low. The best software provides a complete inventory picture in seconds.
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Cost Savings
Inventory management software can save nonprofit organizations money in a number of ways, from the most direct — for example, automating tasks that would require hours’ worth of manpower and salary — to the very indirect, such as storing data in useful ways such that statistical analysis will reveal subtle opportunities for cost savings that otherwise might have gone unnoticed forever. The larger and more complex a nonprofit’s inventory management challenges, the more it can save with software. Of course, this type of software doesn’t come free, so nonprofits will want to make sure a potential solution passes their cost-benefit criteria.
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Enhanced Financial Management
With improved inventory management comes improved financial management. To the extent that a nonprofit is paying to acquire, store and move its inventory, better inventory management can not only help it save money, but it can also help predict costs in different possible scenarios. Such foresight leads to better preparation, fewer surprises and strategic resource allocation. Integrating inventory management systems into other parts of the organization’s operations — such as its customer relationship management and accounting systems — can further accumulate and compile information and add value to both real-time management and advance planning.
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Improved Decision-Making
With all this information at their fingertips, nonprofits will be able to make all kinds of decisions with greater accuracy and confidence. From simple, clear decisions (such as “When and how should we reorder supplies for our neighborhood art program?”) to more complex, murky decisions (such as “Should we expand and/or improve our existing warehouse, or should we build another and, if so, where?”), software armed with a treasure trove of accurate data can lead to better, well-reasoned decisions.
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Enhanced Donor and Stakeholder Trust
Leading inventory management systems reduce risk in a number of ways, including identifying problems early, allowing for problems to be investigated and addressed more effectively, and enabling the organization to deliver on its promises with greater efficiency and reliability. All of these benefits, in turn, lead to increased trust from stakeholders, especially donors who want to know that their money is being well spent. Inventory management software can generate reports with key performance indicators to show donors more precisely how their dollars are being spent and how effectively resources are being deployed, thereby encouraging future donations.
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Scalability
The last thing any business wants is to invest in software that it will eventually outgrow. An inventory management system should be able to help a nonprofit scale efficiently as it grows and/or its inventory expands. It could be as simple a fix as adding more data fields or activating a new module as operations grow. The best software doesn’t just help the nonprofit scale; it scales right along with it.
Manage Your Nonprofit Inventory Effortlessly With NetSuite
There are many inventory management software systems out there, but NetSuite Inventory Management excels in areas that are particularly important to nonprofits. Through the use of automation, NetSuite Inventory Management does away with manual, error-prone inventory reporting and tracking. It also provides real-time visibility of inventory across multiple locations, analyzes inventory data to better forecast demand, is scalable, integrates with other business systems and minimizes carrying costs derived from excess inventory. By streamlining the management of its inventory, a nonprofit can better manage its budget, achieve its mission and demonstrate to donors that it is using their much-appreciated contributions in the way they were intended.
Just because profit isn’t their main goal doesn’t make inventory management any less important for nonprofit organizations. In fact, it may be more critical, given nonprofits’ reliance on donations and the need to demonstrate to donors how and where their contributions are helping. Proper inventory management can also trim costs, improve planning and strengthen relationships with suppliers and donors. Inventory management software that grows with a nonprofit also lightens the load for its hard-to-come-by staff, who can then spend more time focused on the organization’s core mission of improving the world around them.
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Nonprofit Inventory Management FAQs
Do nonprofits have inventory?
Many nonprofits, with a wide range of missions, have inventory. Art museum gift shops, food banks, music education programs and more all need inventory to either distribute to people and/or to run their programs effectively.
What is the simplest way to manage inventory?
The simplest way to manage inventory is going to vary by business. If a company has no employees, one location and sells one item that it makes itself, a simple spreadsheet may be all that’s needed to manage its inventory. But for growing businesses, an integrated software solution that automatically tracks inventory levels across multiple locations, among many other tasks, will be in order.
How can technology, such as inventory management software, improve nonprofit inventory management?
Inventory management software can help nonprofits in many of the same ways it helps for-profit companies. Having a better understanding of inventory levels, pipelines, logistics and costs will help a nonprofit run its operation better and not be caught by surprise by surpluses and shortages.
How can nonprofit organizations use data analytics to improve inventory management decisions?
There are many ways for nonprofit organizations to use data analytics to improve inventory management. A few common ones include identifying trends in demand, optimizing inventory levels at different locations in advance of upcoming demand and identifying areas for improvement in logistics and forecasting. Using data analytics to assist in inventory management decisions can help nonprofit organizations save money, improve efficiency and ensure that they are using their resources effectively.
What are the 4 types of inventory management?
While there are common overarching strategies — such as just-in-time management, materials requirement planning, days sales in inventory and economic order quantity — the truth is that organizations use lots of techniques, combine some to make their own, apply different methods to different products or locations, and learn from experience to refine the systems that work especially well for them.
What are the 3 major inventory management techniques?
There are many inventory management techniques, but three good ones to be aware of are reorder-point calculations, for figuring out when to order more inventory; demand forecasting, for predicting demand for inventory; and safety stock, for ensuring that extra inventory is on hand in a pinch.
What is the simplest way to manage inventory?
The simplest way to manage inventory depends on how much inventory needs to be managed, but for any business with growth intentions, software that automates as much as possible and integrates with other business software is the correct answer.