Inventory control is much more than just having enough quantities of inventory stock on hand. It is also about ensuring that the right stock item is delivered to the right customer, at the right time. Therefore, it makes sense that a direct relationship exists between inventory control and sales.
Accurate inventory control helps a business to maintain the right amount of stock necessary to operate at optimum levels. Requiring the accurate management of a business’ raw material and other inventory purchases that will eventually be turned into goods for sale.
Inventory control and sales growth
In a manufacturing business, the operational process uses raw material inventory to produce items that become finished goods inventory which is held for sale. Companies rely on forecasting to project sales demand to help determine the impact of anticipated sales on inventory stock and to manage production scheduling.
Once customers place an order, these are fulfilled either directly from the manufacturing process or from inventory stock held. Inventory levels rise when production exceeds sales levels, negatively impacting cash flow and warehouse capacity. Conversely, inventory levels decrease when sales exceed production and can lead to incomplete order fulfilment and backorder situations.
Understanding the correlation between inventory control and sales is important because you can’t sell what you don’t have. A business needs to be able to project product demand to ensure adequate inventory stock is available as sales volumes grow.
Inventory control is critical to business profitability and growth — imagine if a manufacturer failed to deliver goods to retailers in time for peak or seasonal sales events.
Sales, inventory and operations planning
The relationship between sales and inventory control is an important one and careful planning should be undertaken to ensure the company has the right inventory stock to meet sales demand.
Sales, inventory and operations planning is an integrated business process that enables companies to develop a supply and demand plan to better understand the demand for the goods and services they offer. The main objective of the process is to synchronise materials, capacity and allocation planning to reduce customer lead times and improve service levels.
To start the planning process, a company must first define its strategic objectives, business metrics and measurements. Demand planning should then be undertaken to estimate sales and business capabilities while managing inventory data to optimise stock levels and reduce inventory costs.
Business owners need to measure on hand inventory stock against all purchased and sold inventory. The accurate recording and reconciliation of sales with production will help identify when inventory stock is running low, when items need to be restocked and in what quantities. This should ensure that inventory levels grow and decline in sync with sales.
A robust sales and operations plan can help the business track profitability and guide decision making about the future to achieve sustainable growth without the need for major investment. Success depends on the integration of the sales forecast, the production schedule and the available budget.
Accurate inventory data is crucial to accurate inventory control. Balances should be recorded and adjusted each time a transaction is made. This can be easily managed with the use of inventory control software which helps to automate business processes and provides a real-time view of inventory stock levels.
Inventory management software integrates with POS systems, tracking barcodes to ensure all sales are properly accounted for, recording transactions and adjusting inventory levels accordingly. Check out all of Unleashed’s available integrations.
The relationship between inventory control and sales must be managed well to accurately allocate income and loss on financial reports.