Typically, having too many items on hand causes expenses to rise and firm liquidity to become less flexible. Companies go through a challenging process of trial and error in quest of a compromise in inventory management. You can resolve this complex issue by examining stocks and calculating the return on investment in stocks.
Very frequently, sales employees accumulate inventories beyond the actual demands of the company, which causes excess inventories to appear. As a result, the liquidity is drastically decreased and may potentially go out of business. The responsibility of the financial director is to avoid this. You should consider hiring a reputed corporate consultant company that establishes a robust inventory management system and find out the following information:
- Whether items in a warehouse require immediate delivery to customers or not.
- Whether the company can rapidly and fully satisfy all client requirements.
- How much money is towards dead and surplus reserves?
- How much inventory will lower storage costs while having minimal impact on the income?
- Whether the profitability will rise as a result of the range expansion.
- How to reduce operational costs and storage expenditures?
SOME BEST PRACTICES IN AN EFFECTIVE INVENTORY CONTROL
Do not let an excess or shortage of inventory harm your company.
Poor inventory control becomes an issue when sales are lost while expenditures are increased. Let us suppose a scenario, things in stock eventually run out due to a lack of supplies. You do not have the products that the clients need when orders come in. As a result, you go out of your way to find more expensive replacements or, worse, you miss out on the sale because the client chooses to do business with a rival who has the items in stock. The opportunity to sell at the best price and the actual opportunity to sell are two opportunity costs associated with stock exhaustion.
However, keeping too many inventories comes at a cost because they must be stored in a warehouse, protected against shrinking, depreciated, and reported as an asset on the balance sheet. The cost of the extra articles typically ranges from 25% to 50% annually. The inability to employ working capital associated with the unsold inventory for other purposes results in opportunity costs for excess stocks.
In both the scenarios discussed above, it is advisable to get in touch with the best corporate consulting company offering best-in-class inventory management to prevent such issues.
REVIEW YOUR PRESENT PROCEDURES
Take a broad look at your current procedures before you make changes. You must be aware of the functions and rationale behind each chain link. You will be able to perfect the particular elements of your system that require improvement in this manner. To discover issue areas, try to compare yourself to other team members.
CONDUCT ROUTINE INVENTORY REVIEWS
Inventory management should include keeping track of the stock levels of each item. The situation won’t be fully revealed by keeping track of what you bought against what you sold. It is inevitable that after being placed in storage, items may become lost or damaged. And frequently, only when the appropriate individual takes notes are lost items counted. Fix this issue by periodically comparing the data accuracy to the physical inventory or seeking the advice of a well-recognized corporate consultant company for efficient inventory management for your businesses.