Inventory management is a complex process that involves systematizing raw material, produced goods, property, and others that hold economic value. There are three types of inventory such as work-in-progress, raw material and finished goods and three kinds of inventory in function like input inventory, process, and output inventory.
To redefine ‘what is inventory management’, it is a process to keep track on the performance of the production of your company and monitors the amount, location, weight and dimension of production. The motive of inventory management is to reduce additional costs and maintain the inflow and outflow of goods and finances to ensure the smooth running of an organization.
Inefficient inventory can result in considerable financial losses and can also affect your working capital. It increases dead stocks, raises the cost of storage, etc. To avoid such unforeseen events, it is essential that you recreate or build your new inventory only when it is needed and avoid unnecessary expenditures.
Hence, it is essential that you take measures to ensure accurate inventory management and regulate your working capital in a proper way to increase the profit margin of your company.
Now that you know all about inventory management discussed below are some inventory management tips that you can follow to save unnecessary expenses and save your money.
Follow the ‘first-in-first-out’ procedure
Consider clearing out your existing or old stocks before producing new stocks. It will prevent wastage of your stored goods and help in maintaining working capital.
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Have a backup plan
You can face several issues regarding inventory management, including –
- Misinterpretation or miscalculation in the amount of stock, resulting in low production.
- You might not have the required storage capacity to stock all your products.
- Suppliers might be unable to provide you with the amount of raw material you require.
- Overproduction and Overselling of stocks, resulting in using up all the raw materials.
- Running out of the required cash or working capital and not being able to produce the required product.
To cope with such sudden issues, it is better always to have a backup plan. It will help you fall back to a safe line where you will be able to tackle the issue in a more efficient manner.
Consider performing regular audits
Keeping your productions under check will not only help you understand the performance but will also help you in reducing unnecessary inventory disputes. Create a regular analysis and report of the quantity of production, stock, and sales. Make sure to opt for spot-checking throughout the year to avoid issues at the end of the year. You can also invest in specific software for auditing for effective inventory management techniques to save money.
Sort production under ABC rule
An effective inventory management technique is to sort products on ABC priority. As per this rule – A signifies products that are of high quality and require significant attention as they hold great financial value, B stands for products with moderate value and C denotes products with a lower value.
Sorting your products as per the ABC rule will help you clear the required stock first before giving priority to other stocks and will also help to convert slow-moving and excess inventory into cash.
Now that you have learned what is inventory, you can follow the tips mentioned above to maintain your inventory. Besides, for better performance of your organization, consider keeping track on the quality of your production and sort your stock accordingly.