It is important that inventory is managed effectively in order to maximize profits. But most people would agree there is no one best way to manage inventory. Methods that work for one business may not work for others. In this article, we’ll be looking at some of the factors that affect the way inventory is managed.
Your inventory management system
In today’s competitive economy, managing your stock on paper or spreadsheets just won’t cut it anymore. A manual stock management system is very time consuming, labor intensive, and prone to errors.
With dedicated inventory management software, you will be able to track your inventory more effectively and better manage many of your purchasing and billing activities. Instead of waiting for your end of year financial statements, you can get a better insight of your profits and losses now and identify potential issues before they get worse. Let the inventory software do the hard work for you so you can focus your efforts on the more productive areas of the business. This will allow you to maintain your competitive edge and not be left behind.
Even if you have implemented a good inventory system, it won’t do much good if your employees are not able to use the software to its full potential. The people who work with your inventory are the most important factor in establishing effective inventory management procedures. It is important to understand that stock management is a professional skill; it requires upfront and ongoing education in order to keep up with new technologies. In short, you need to make sure your employees are well trained. Don’t force them to take on too much at once. Let them start with the basic features and build up from there.
The nature and size of your business
The type of items you sell can affect the way you manage your stock. In theory, businesses that deal with perishable products are more likely to keep their inventory levels low. However, this isn’t always true for staple items like bread and milk, despite being perishable, businesses overstock these items as they are fast moving consumer goods. So they are very likely to sell before their expiration dates.
For businesses with large-scale operations and wide market coverage, their inventory levels will be high even if they sell obsolete inventory. Amazon is an example of such a business. Being the world’s largest shopping site, their economies of scale allow them to hold more inventory than many of its competitors. The business they can bring to their suppliers allow them to dictate terms and prices. These savings are passed on to the consumer through lower prices than its competitors, so inventory with risks of obsolescence is usually sold quickly.
For small businesses, the amount of funds you have available can affect the way you manage your stock. If you have limited funds, you are more likely to hold less stock and be more inefficient in managing it.