Inventory Management: Why Is It Important?

Inventory Management

Many merchants dread the term inventory, as it means that they have to do lots and lots of accounting work. Many businesses, both big and small reconcile their stock at the end of each year. This means that the physical products have to be counted to confirm whether they match with what has been recorded in the books.

Inventory management can be viewed as a placeholder for your money. Given that you have paid for the inventory; you expect to get your money back when you sell it.

When you hold up your inventory, it means that you are also tying up your cash as well. It is the reason why any growing company should ensure that its inventory management is substantial. Your inventory is similar to cash flow–it can either make or break your company.

Why is Inventory Management Important?

Good Inventory Management Practices Can Save You a Lot of Money

Employing the right inventory management techniques can save your business money in the following crucial ways:

  • Avoid product spoilage: if selling products that have an expiry date, e.g., makeup and food, there is a possibility that the products could go bad if they are not sold on time. Good management techniques will ensure that such products do not go bad.
  • Do away with issues of dead stock: deadstock refers to products that you can no longer sell. It does not necessarily mean that the items in question have gone bad. It could be because they are no longer fashionable or have suddenly gone out of style. Tracking and managing your inventory will ensure that such issues are avoided in advance.
  • Save on storage-related costs: warehousing or storage costs are categorized as variable costs. They fluctuate depending on the amount of products that are being held in a warehouse. Once you store too many products at once, the costs are likely to shoot up.
  • It can improve your cash flow: proper inventory management will help save money, as well as improve its flow. Keep in mind that the inventory sitting in your warehouse has already been paid for before Therefore, when it is sitting there, it means that you are not earning anything. Managing your inventory well will ensure that you do avoid facing a cash crisis.

Inventory management programs are customized for each company or business. But the primary aim of any business should be to eliminate human error from the stock management process. You can achieve this by taking advantage of the numerous programs that are on offer.