How Inventory Management is Important and Their 4 Essential Techniques

• February 27, 2019Back Office Support, Tips and Tricks

Inventory is an important aspect of any business and every business require to reconcile their inventory at the end of the year by counting up all their physical products to make sure it matches with the record of their books. We can’t deny the value of inventory in a business as we paid money for the inventory and get back money when we sell it. This is the main reason why we need to take full attention at our inventory management for the success of company.

What is inventory management?

Inventory management is the process of keeping track of a company’s stock and make a record of their weight, dimensions and amounts. The main purpose of inventory management is to reduce the cost of holding inventory and update business owners about the time of reload products or need to buy more material for manufacturing products as holding inventory can block lots of cash.

Benefits of inventory management

1. Avoid dead stock

A stock that can be no longer be sold is a dead stock that is not only because of their expiry date. Other reasons also can be happening such as out of seasons and out of style. A good inventory management helps us to avoid dead stock.

2. Save on storage costs

When we talk about “Warehousing”, it is your variable cost that depends on how much product you are storing at your premises. Your storage cost will automatically increase when your store large number of products at ones that are hard to sell. When you avoid this, you can save your money as well.

3. Avoid spoilage:

A good inventory management helps you to avoid all unnecessary spoilage. For example: Those products that are going to expire soon, you should sell them first to avoid spoilage.

Now we tell you 4 important inventory management techniques that will definitely help you for good inventory management.

A. First-In First-Out (FIFO)

FIFO is an essential rule of inventory management. That means your oldest stock (first-in) should sold first (first-out), not your new added stock.

To run it perfectly, you should have an organized warehouse. You should make sure that new products are adding from the back and old products are at the front.

B. Set par Levels

Par levels means the minimum amount of product that must be on hand at all times. So, make your inventory management easier by setting “par levels” for each of your products. Par levels depends on the product type such as how much the product is in demand and how long the product takes to get back in stock. Setting par levels helps you to systemize the process of ordering. It reduces your involvement as your staff can take decisions on your behalf.

C. Manage Relationships:

You should have strong relationships with your suppliers in all your needs, whether you want to extent your storage space or restock a fast seller product quickly. With your strong relationship, they will be more willing to work with you to solve your problems. Inform them when you are expecting an increase in sales so that they can easily adjust production.

D. Regular auditing

Regular auditing is very essential task. You should check reports from your warehouse timely so that get full idea how much products you have in your stock. You can use different methods for this:

i) Physical Inventory

In the process of physical inventory, you count all products one time. Most of the businesses do this at the end of the financial year when they are going to fill their income tax returns. It is a very tedious task and if you found any discrepancy then it becomes very difficult to find where was the issue in the entire year.

ii) Cycle Counting

Most of the businesses use cycle counting to audit their inventory instead of counting inventory at the end of the financial year. It can be on daily, weekly or monthly basis.

Conclusion: A good inventory management helps you to reduce costs and increase your profits. Your business gets more better chances to make profits and survival rate. So, take steps ahead to keep an eye on your inventory. Use the right inventory techniques for your business and start apply them today onward.