Managing inventory is the biggest nightmare for everyone: small sized entrepreneurs to fortune 500 companies. Finding out how much inventory is sufficient so as not to go out of stock thus leading to disappointed customers as well as trying not to burn a hole in the cash flow statement by stacking up excess inventory is the main headache in most businesses. Finding out the right balance can be an extremely daunting process.
People often have no good idea what they actually have in their inventory. In order to have an intuitive inventory system, people need to make sure they have exactly the right amount of right products at the right location at the right time. In order to have an intuitive inventory system, one needs to follow some guidelines and rules. The first and the most important step is to monitor and track the inventory.
One needs to apply a very reliable, fast and efficient way of labeling and recording how much inventory one has, where are the products located as soon as the department receives the product. Sometimes there is a fault in computer software’s and also not to entirely depend on computer systems, one need to regularly monitor the inventory manually so as to cross check if the systems are working accurately. It is equally important to measure the performance of one’s inventory management.
Tracking the number of days the inventory was stored in the warehouse for each type of product is the key factor in determining the performance measures which makes the most sense for one’s business. Inventory accuracy, losses, supplier lead time and product turnover (how often it is sold in a period of time) are some of the other important things that need to be analyzed in an intuitive inventory management.
In a business, all other functions and processes like inventory management, distribution, production, finances and accounts works hand in hand and are dependent on each other. Many times companies buy piles of stock in advance at once to reduce transportation costs and also because buying products in bulk is cheaper, but they fail to account the loss of money that the stock holds which could expire or sell slowly because of change in market trend which would have otherwise been used in marketing, upgrading software etc necessary things to grow business.
So there exists software’s of sales and operations planning (S&OP) which can help the company to coordinate various activities in a business. Much advanced software’s can also do sales forecasts and financial considerations. But for people who are already in this problem of extra stock purchase, the first thing to do is to ask themselves why they had so much inventory in the first place and work on solutions so that it does not happen next time also. It is because of lead time, production delays or delivery issues.
Solving this problem would help the business in the long run. Now if one has a lot of inventory gathering dust and occupying space in the warehouses one should not just dump it or sell at excessive loss to get rid of it. Make a plan to sell it on discounts or bring up innovative schemes to clear it first.