Inventory refers to both the raw materials and the finished goods that are crucial for any product-based business. Often, such as in the case of a retailer, inventory is the business’s biggest asset. But even if your inventory is not the largest item on the balance sheet, having the right inventory in stock is important to ensure your business continues as usual. Because of its importance, a market has developed for inventory management systems that help businesses to keep track of inventory.
At its most basic, inventory management means knowing what stock your business has on hand, and being able to evaluate that against your inventory needs. A key feature of inventory management is having a reliable picture of current stock levels. Although some inventory management systems, especially ones for small businesses, may update stock counts by way of a periodic stock take, many effective inventory systems like Unleashed keep real-time records of stock levels so that the business’s understanding of its inventory position is perpetually accurate.
To evaluate stock levels against the business’s inventory needs, an inventory management system will need to supply data on the timing of inventory. After you place an order for raw materials or stock, how long does it take for each supplier to process and deliver the product, and how long will it take your business to exhaust those materials or sell all of that stock? By comparing current inventory levels to the timing of inventory, it becomes much easier to decide when orders need to be placed. This helps to avoid production slowing down or coming to a halt. For complex manufactured products with many components, an effective inventory system should be able to break the product down into its constituent parts in the form of a manufacturing bill of materials. This allows the business to keep a careful eye on the amount of each component in stock and means that production will not be held up because someone forgot that one part that can be easily missed (such as a bottle cap, a packaging box, or a screw).
Ordinarily, effective inventory management involves holding a level of extra stock in order to mitigate the risk of running out of inventory. Although it is prudent to maintain some safety stock as a buffer, a business’s operations can be made leaner if that buffer can be safely reduced. An effective inventory management system allows this to happen. It means managers have greater visibility over stock levels, the risk of running out of inventory is reduced and the level of safety stock needed is minimized.
Inventory management is not only about controlling stock to safeguard production but it is also useful for accounting and reporting purposes. An effective inventory management system makes calculating the value of the inventory currently held as well as other metrics such as the cost of goods sold simple. If your business imports stock, multi-currency support allows you to buy and sell in any currency with every transaction converted back to your home currency. A comprehensive system also makes it easier at tax time, speeding up your tax reporting while also reducing the risk of initially underpaying tax and later being subject to penalties.
Taking control of your inventory can make your business leaner, more reliable and more profitable. From a manual system to cloud-based software, the options for managing your inventory are extensive. There’s an inventory management system to suit almost any business and budget.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.