How to Measure If Your Inventory Control is Working Efficiently

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As a successful manufacturer or distributor, you understand the importance of managing inventory to ensure the business has enough stock on hand to meet customer demand. You’ve invested considerable time and effort into streamlining and enhancing your inventory control, but now you are unsure how to measure if these efforts have been effective.

There are numerous indicators of successful inventory control including the absence of dead stock, improved cashflow and greater profitability. The following factors are indicators that your inventory control is working well:

Continuous inventory turnover

Inventory stock is moving in and out of your warehouse at a steady rate, without the need to rely on safety stock and your warehouse is not full of excess goods cluttering your shelves and floor space with little or no potential to shift them in the future.

Steady inventory turnover is saving you money because you have avoided unnecessary spoilage, dead stock that can no longer be sold and you are saving on storage costs as a result.

ABC inventory analysis

You’ve prioritised inventory control by implementing ABC analysis, separating products that require a lot of attention from the inventory stock that doesn’t. Categorising stock into the following three categories:

A – high-value products with a low frequency of sales
B – moderate value products with a moderate frequency of sales
C – low-value products with a high frequency of sales

Category A items receive regular attention because of their significant financial impact and unpredictable sales. Category C stock is given less oversight due to lower financial impact and items in category B are managed somewhere in-between.

Greater visibility of inventory stock

With clear, real-time visibility of inventory stock you know exactly what products you have, how many units of each and where they are located so you can monitor sales and project when you’ll run out. Knowing what you have, how much you have and where it is located, helps you make smarter ordering decisions.

Tracking parts and components of any production processes is a sign that all elements of inventory are managed correctly and ensures you replace stock on time, so you don’t stall production or lose sales.

Reduced manual handling

You have taken steps towards paperless inventory control and are utilising the latest warehouse management software to improve accuracy and efficiency, reducing instances of human error.

Automation and optimised process flows mean staff can quickly and efficiently locate inventory parts and unnecessary double-handling of inventory stock has been eliminated. With the implementation of barcodes and RFID scanners, productivity and order fulfilment have improved, and labour costs reduced because there is less handling.

Improved cashflow

Cashflow is important to your business, it gives you the flexibility to manage debt, to respond to unexpected setbacks and periods of decreased demand.

Short cash conversion cycles are an indication that working capital is being efficiently managed. Cash conversion cycles are the average number of day’s money is tied up in inventory, less the average time taken to pay suppliers.

You know your inventory control is successful when it leads to better cash flow providing opportunities to grow your business, invest in your people or update facilities to improve capabilities, delivering the confidence to make better decisions for your business.

Successful inventory control

The signs are there that your inventory control is being managed effectively, inventory turnover is consistent, costs are down, and profits are up. That doesn’t mean there’s time for complacency, inventory control practices need to be regularly analysed and reviewed to ensure they are always optimised to current business needs.

Regular auditing is vital. Ensure that inventory reports match physical inventory stock by conducting physical inventory counts. Instead of waiting until the financial year-end to conduct a full inventory count you can spot check inventory by selecting certain products to count throughout the year, comparing counts to recorded quantities.

Alternatively, cycle counting will enable you to spread reconciliation throughout the year by selecting different products on a rotating schedule daily, weekly or monthly. Varying methods determine which stock to count and when, however, high-value items should be counted more frequently.

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Melanie - Unleashed Software

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.

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