How to manage inventory: Tips for finance professionals
How to manage inventory:
1. First up for this how to: Inventory management guide: It is important to think about the costs associated with storing inventory. There is a cost for storing inventory regardless of whether you store it at your location, or offsite. Furthermore, there is also a risk of goods becoming damaged or outdated. These issues also apply to raw materials. Being aware of the costs ensures that you can accurately track exactly how much you are spending on storing your inventory, as well as noting any stock which is not suitable for sale.
2. When we think about how to manage inventory, theft and damage should also be considered. It is a good idea to carry out a physical inventory count on a monthly basis. If you experience loss issues, you may wish to conduct more frequent counts. Once you have completed your stock take, be sure to compare it to your existing records. Completing this process ensures that you have as much physical inventory as you think you have.
3. Do your levels of inventory meet demand? Also, do you have a suitable mix of inventory? Monitoring your anticipated sales keeps costs low while making sure that your customers are happy. Keeping track of your best selling items and making sure that you have enough stock of them to meet demand will ensure that the clients (and your profits) will not suffer!
4. Another important tip on how to manage inventory: Be careful not to buy or manufacture inventory or raw materials before they are needed. Money which is tied up in materials that are not yet ready to be used is an unproductive use of cash, which could be used on something more urgent or efficient.
5. Allocate the appropriate resources to purchasing. Make sure that you are managing your purchasing function efficiently, as it can save you money on materials as well as parts. Another top tip is to negotiate the best price and buy in bulk where it is appropriate. But remember, be sure to only buy in bulk if you require the inventory and have adequate space to store it.
6. The next step of this how to: Inventory management guide is: Follow a system. Record every product movement as either for an internal use or as a customer sale. This ensures that you are keeping track of all inventory and can track costs and manage future demand. A calculation which can help you to manage inventory is:
Beginning Inventory + Purchases – Sales or Transfers = Ending Inventory.
7. Once you have followed tip 2 and taken count of your inventory, if your physical count is different from your records, then consider material differences and investigate where issues may arise. You could also consider making some corrections to your inventory management process to ensure that you are tracking product movements thoroughly.
8. The final step of this guide on how to manage inventory is to: Consider costing. Your inventory transfers may not be handled well when it comes to costing. This can sometimes depend on how advanced your accounting system is. Make sure that you are using an accounting system which accurately and efficiently handles your inventory transfers.
There can be many common costing problems which you should try to avoid. If sales are recorded before purchases, this can also create a costing problem, meaning inventory costing will be incorrect. However, this can be corrected by doing a physical inventory count and then you simply adjust the value on your balance sheet. The offsetting entry is to cost of goods sold and should correct the income statement as well as the balance sheet.
Concluding our ‘How to manage inventory guide’:
That concludes our top tips and how-to guide for managing inventory. Two of the most important points is being organized and having a system. This will allow you to be as efficient as possible, helping your business’ profits. While there can be several challenges and things to consider, following these steps should help you deal with any issues before they become a problem and successfully implement efficient and accurate inventory management processes which contribute towards the financial success of your business.
If you need help choose a suitable system, our guru will gladly assist.