When you describe the word inventory, what comes to your mind? Inventory means a lot of cash and it means a lot of counting as well. It is common for every business to reconcile their inventory at the end of the month by counting all their products and understanding if they can match the books or not.
You can understand how solid inventory management is. The pros and cons are evident and without proper management, any company out there cannot stand out on their own without counting their loss or the profit made by the group.
Understanding the nature and importance of inventory management
Before we can start with this article, let us tell you the idea and concept behind inventory management. It is the management’s count of the final product at the end of the company’s month. It helps the management to get a brief knowledge of the products sold and even the profits made from the count.
The goal of inventory management is to replenish the cost and manage/cut out the excess expense from the part of the company. It helps the management to understand if products are to be bought for manufacturing.
Most times, companies have dead stockpiling at their storage. It happens because workers might not keep track of the items which are going in and out, every time. Warehousing even becomes important after one part of the time. By managing the inventory better, you can avoid all the warehousing prices which might cause you a heavy charge or payload.
Proper ways to save your Money while Managing Inventory
Step 1: Setting per levels
You can always make inventory management better by keeping the costs at par. It is setting up for a price at par levels to help you manage the basic requirements for your inventory management. When your stock dips below the predetermined levels, you can always understand that it is time for you to order for more.
Ideally, there is a typical quantity of amount which has to be drawn accordingly. Par levels for the product are based on the management and how quickly you can sell them. Not only setting a par level cost can help you to meet your expectation right on time, but also it helps you to understand the whole price at the right time and unit.
Step 2: Using the FIFO
As the abbreviation means first in, first out, every inventory should be managed according to this rule. It helps the management to draw in for the inventory that comes on a first serve basis. It is a good idea for the perishable units and those items which need your utmost attention.
FIFO is a useful method. If the same boxes are sitting in your warehouse for a very long time then this method can help you to have a proper understanding of which needs good attention. FIFO helps you to add all the new items to your warehouse. Otherwise making sure, old products can stay at the back and then you can take care of the items which came in for new.
Step 3: Have a proper contingency planning
Here is how you can have a contingency planning idea.
- Your sales can spike unexpectedly and you can oversell all your stock.
- You can run into a shortfall for the cash income for your business.
- Your warehouse should have a good room and the items that you are bringing in will help you to manage accordingly.
- A slow-moving product may take up a lot of space and time.
Before you run into any queries of your own, here we have a summary ready for you. Inventory management helps you to understand the stock price and helps you take care of your income.
So once you have an idea of how things are going and at the same time, it helps you to have a list of plans, you can avoid miscalculation for inventory management. Based on the FIFO plan, you can take care of the items which are brought to your store at first. Otherwise, regular planning, proper auditing, and keeping a check on the items will help you to have a proper cash flow.