{"id":359,"date":"2020-12-10T14:24:31","date_gmt":"2020-12-10T14:24:31","guid":{"rendered":"https:\/\/www.cac.net.in\/blog\/?p=359"},"modified":"2024-10-11T16:42:20","modified_gmt":"2024-10-11T11:12:20","slug":"importance-of-inventory-management-in-reducing-costs-and-valuation-approaches","status":"publish","type":"post","link":"https:\/\/www.cac.net.in\/blog\/importance-of-inventory-management-in-reducing-costs-and-valuation-approaches\/","title":{"rendered":"Importance of inventory management in reducing costs and valuation approaches"},"content":{"rendered":"\n

The correct order and management of inventories is one of\nthe main factors that affect the performance of companies and the profits\nobtained. <\/p>\n\n\n\n

Therefore, it is vitally important for companies to have a\nwell-managed and controlled inventory. The focus in this area should be to\nmaintain an optimal level so as not to generate unnecessary costs.<\/p>\n\n\n\n

Inventory management is composed of their control and\nplanning, in general terms it is about understanding three important factors:<\/p>\n\n\n\n

  1. How often should the inventory level be determined for each item?<\/li>
  2. When should an order be placed with the supplier?<\/li>
  3. What is the optimal order quantity?<\/li><\/ol>\n\n\n\n
    \"\"<\/figure>\n\n\n\n

    How to value\ninventory?<\/strong><\/p>\n\n\n\n

    A necessary element to keep a good inventory control is to\nknow exactly what the value of our merchandise is. To do this, there are\ndifferent approaches. Three of them are:<\/p>\n\n\n\n

    1. FIFO (first in, first out)<\/li>
    2. LIFO (last in, first out)<\/li>
    3. The weighted average method: PAP.<\/li><\/ol>\n\n\n\n

      Let’s see the case of\nthe FIFO method<\/strong><\/p>\n\n\n\n

      The FIFO method gets its name from the initials in English\nfor first in- first out. In other words, what has entered our warehouse first must\nbe what is first released.<\/p>\n\n\n\n

      It is one of the most used management methods when handling\nperishable products, for example. In this case, we seek to prevent the products\nfrom reaching their expiration date in our warehouse. In this way we reduce\nlosses for this reason.<\/p>\n\n\n\n

      How is inventory\nvalued with the FIFO method?<\/strong><\/p>\n\n\n\n

      This assessment is something that we will usually need in\norder not only to optimize our logistics processes, but also to comply with\naccounting legislation. For this, it is necessary to have a series of data\nregistered, such as:<\/p>\n\n\n\n