August 4, 2016    3 min read

Keeping track of your inventory is an important task for any business dealing in the production or sales of goods. Accurate inventory management can help protect businesses from fluctuations in product demand while also enabling the effective use of working capital. It minimizes the administrative workload placed on employees and, most significantly, good inventory control allows a business to ultimately deliver a consistently high level of service to its customers.

The amount of inventory a business has in stock at any one time can have a substantial impact on sales and consequently, company profits. If a business doesn’t have enough of a product to meet demand then they have to turn consumers away or increase wait times. This means they are at risk of losing not only product sales, but also customers, as they take their sales to a competing business that can satisfy their needs. On the flip side, if an inventory item is overstocked then that can create another set of problems. The longer an item sits on the shelf, the greater the chance it will never be sold. Products go out of style or become obsolete, meaning they often have to be written off or heavily discounted.

Businesses dealing in perishable goods need to take into account their limited shelf life, and control their inventory levels accordingly. There are also the additional costs that come with excess inventory levels such as increased storage, maintenance, security and insurance expenses. On top of all this, the money wasted on an overstocked inventory is valuable capital that could be applied elsewhere within the company.

So how do businesses ensure they don’t overstock products, while simultaneously meeting customer demand and avoiding lost sales? The answer is inventory control.

Stock levels will vary from business to business depending on the type of product being sold, but each business will have an optimal inventory level that suits them. These optimal levels are based on forecasts, but no matter how good a forecast is, it won’t be 100% accurate all of the time. Sometimes the differences are small and go unnoticed, but sometimes they can be big – this is where inventory control is important. Effective inventory management helps a business cope with any variations in product demand and in maintaining a balance between carrying costs and ordering costs. It is important to remember any reduction (or increase for that matter) in inventory spending will directly influence a firm’s profitability. Having good control over inventory levels also means a business can maintain enough stock for smooth production and consistent customer service levels.

While good inventory control has a number of benefits, none are more important than the improved service levels you are able to provide to those who choose to buy your product. If you cannot provide your customers with what they want, when they want it, they will not be your customers for very long. By being in control of your stock management you are able to complete production on time, reliably deliver your products when required and keep your customers happy.