As a rule, excess stocks of goods lead to a decrease in business liquidity and an increase in costs. In search of a compromise in inventory management, companies go through a difficult path of trial and error. This problem can be solved by analyzing stocks and evaluating the return on investment in stocks.
Very often, sales staff build up stocks that significantly exceed the real needs of the business, which leads to the appearance of excess stocks. As a result, the liquidity of the business is sharply reduced, and possibly even bankrupt. To prevent this is the task of the financial director. Thinking over the inventory management system, you need to get answers to the following questions:
- Whether the company will be able to satisfy all the requirements of customers quickly and to the extent necessary and whether goods are stored in a warehouse that does not need immediate delivery to customers;
- What part of the funds is invested in “dead” and excess reserves;
- How much inventory will reduce storage costs and will not significantly affect the company’s revenue;
- Whether the expansion of the range will increase the profitability of the company;
- How to minimize storage costs and other operating costs.
Do not allow an over or under inventory to compromise your business
Loss of sales and soaring costs turn poor inventory management into a serious problem.
The insufficiency of stocks leads to the exhaustion of the items in stock. Orders arrive and you do not have the items that customers require. As a result, you bend over backward to find more expensive replacement items or, perhaps even worse, lose the sale because the customer turns to your competitor who has the items in stock. Exhaustion of stocks entails opportunity costs: the opportunity to sell at the best price and the real opportunity to sell. For avoiding such problems, it is suggested to contact the best inventory management firm.
On the other hand, holding excessive stocks entails costs because these stocks must be kept in a warehouse, secured against shrinkage, depreciated and taxed as an asset in the balance sheet. The excess articles generally weigh 25% -50% a year on the company’s costs. Excess stocks also carry opportunity costs: working capital linked to the unsold inventory cannot be used for other purposes.
Evaluate your current practices
Before you can make improvements, you need to take a general look at your current practices. Effective inventory management is based on the purpose to be achieved. You need to understand what each link in the chain does and why. In this way, you will be able to perfect the specific aspects of your system that need improvement. Try to compare yourself with other members of your team to identify problem areas and start from this aspect.
Perform regular inventory reviews
Knowing the quantities of each item held in stock is a good part of inventory management. Keeping track of what you purchased compared to what you sold won’t give you the complete picture of the situation. Items can be lost or damaged after they have been put into storage, it is inevitable. And often, lost articles are counted only when the right person takes notes. Fix this problem by regularly comparing the accuracy of the data against the physical inventory or consulting inventory management companies.