Managing inventory is one of the most important factors for companies overall success and profitability. In order to stay competitive in the industry, it is critical to be aware of supply and demand, and how to properly cater to customer needs.
There are a number of inventory management techniques that keep a company running smoothly and should be utilized in storing, tracking, delivering and ordering stock. When these strategies are executed efficiently, proper inventory management will reduce company costs, keep track of inventory in real-time, accurately forecast demand and prevent product excess and shortages.
Here are the best tips to follow when managing your inventory:
Always keep track of your inventory levels.
One of the first steps in properly managing inventory is to make sure that you are aware of what products are on hand at all times. This will eliminate the unfortunate issue of running out of product and failing to complete orders.
There are many ways to successfully keep track of inventory levels in real-time. Taking stock frequently, especially on items with a quick turnover, will prevent any missed inventory or calculation mistakes. Catching the mistakes early on could prevent the loss of a sale or failure to deliver, which protects your companies credibility.
Spot checking is another helpful strategy for tracking products. Instead of taking count of full inventory once a year, choose a product to focus on every week. Count the selected product and compare that number to what your current tracking systems say you’re supposed to have. If these numbers do not match, there is an error in your inventory system. Spot checking is especially helpful for tracking fast-moving products that consistently fluctuate. This strategy will allow your company to check the effectiveness of your inventory tracking methods.
Take advantage of forecasting technologies.
Forecasting is a management strategy that uses historical sales data to predict future performance. This tool can be used to assess demand levels for accurate management. By tracking trends and patterns in sales, companies are able to map out the peak times of certain products and plan accordingly for production fluctuations.
Keep your priorities in check.
Being aware of which products have the greatest demands will help in prioritizing production and storage. Usually, 80% of demands are generated by only 20% of your products. By being conscious of demand, your company will avoid product excess and shortages. This will cut down on production costs of excess materials and will increase profitability by eliminating any “out-of-stock” situations. Prioritizing which products need the most inventory space and production time will keep your company on track for successfully managing the inventory at hand.
Analytical tools provide a number of benefits to inventory management. By analyzing processes, the areas of management that work smoothly and the parts that need improvement can be easily identified. Analytic dashboards can show the current stock status of an inventory, which provides real-time insight into what’s in stock at any given moment.
These tools can help catch a problem immediately and prevent it from spilling over into other parts of the operation. In the long run, analytical tools will maximize productivity and eliminate wasted time on minor calculation errors.
Incorporate inventory accounting methods.
Inventory accounting is very important for tracking fluctuations in inventory assets. In a recent blog post, FitSmallBusiness gives a detailed explanation of the three stages of accounting. These include:
- Placing your order with a vendor. At this stage, there is no financial entry to the books
- Receive your product from the vendor. When the product arrives, you should create a document to record the quantity of material you received. When this data is entered into the system, your total inventory numbers will increase accordingly.
- Selling products to consumers. When you sell a product and it leaves your warehouse, several documents should be recorded. First, an invoice should be created for proof of sale. Next, your inventory account should decrease based on the products that were sold. Finally, the cost of the goods sold account will increase to reflect the inventory cost method.
There are a variety of different methods to keep track of your inventory in an organized way, including the average cost method, LIFO method and FIFO method. For more information on these inventory accounting strategies, read the full article here.
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