The term inventory management really describes the effective method of controlling objects and activities and ensuring that they get to the right place at the right time all within a cost parameter.
Effective Inventory management covers amongst other things, stock control. It is important to order enough stock of a product that sells well - but it is also very easy to over order good selling items. You are then faced with the problem of additional overheads in the form of insurance, stock control and storage. It is also just as easy to over order products that just don't sell, or just sell very slowly. Products such as these can sometimes be shifted with concerted sales and marketing effort but often these products end up being sold at a loss or sometimes even disposed of as this option works out cheaper than storing it.
One of the methods of working out better inventory management is to work out the actual storage cost of a product over its lifetime. Compare this cost to the total cost of storing this product for a year - this should focus the mind on how many items should be bought in the first place and how long it can reasonably be expected to store it. To determine whether goods should be destroyed means examining the monthly sales to inventory ratio. From this - based on the average time frame it takes a particular product to shift, you should have a fairly good idea of whether a product should be kept or destroyed.
Ultimately bad inventory management represents money that is being lost to a business. Bad inventory that is stored for too long not only ties up money in insurance but also ties up money because of the cost of the product itself.
There is a fine balance to be learned and put into place between not ordering to much stock but also not reducing service. Ultimately customers don't like to be kept waiting whilst a good has to be reordered.
Inventory should also be spread over a large range of stock, but the most popular items should have plenty of stock against them.
Ultimately buying enough stock in advance can also reduce costs as volume sales can often be negotiated downwards in price.
Turnover rates ultimately vary though depending on the type of business and how the inventory to sales ratio is worked out.
Sourcing a supplier who can not only produce a quality product but can turn around a large order for you at very short notice is the goal of every inventory manager. This coupled with a good understanding of product inventory to sales ratio and you have the basic ingredients to successful inventory management
About this Author
Tom Bisman has writes on the logistics industry. He has worked successfully in the logistics consulting industry for 10 years.
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