Four Things You Should Know About Inventory

 

Manufacturers, wholesalers and retailers can testify that inventory is the backbone of their business. Even service companies keep inventory of items they use in delivering their services. In simple terms, inventory refers to store of goods for use or for other purpose. Some companies practice Just-In-Time inventory management. This is a method where goods are received from suppliers only when there is an order. The reason is to reduce the cost of keeping inventory.

 

Poor inventory management can lead to several problems. It can disrupt business operations and lead to customer dissatisfaction. For example, a company cannot produce when there is shortage of raw materials. Items of inventory can be stolen if management do not pay close attention to inventory levels. Inventory can be damaged if they are not handled properly.

 

Why keep Inventory

 

To meet customer demand

 This is especially important for retail business. For retailers to stay in business, it must have the products that customers want on hand when the customer want them. If not, the retailer will have to back-order the product. The customer may not be patient enough to wait for the product to arrive and may decide to go somewhere else.

 

Keep operations running

A manufacturer must have raw materials in order to manufacture its products. Running out of only one item can prevent the manufacturer from completing the production of its finished goods.

 

Close lead time gap

Lead time is the time between placing an order from a supplier and receiving the order. Having buffer stock ensures smooth running of the business during this period.

 Inventory Control

Inventory should be monitored closely to ensure they do not run out. A company should set the reorder quantity for its inventory. When inventory level reaches the reorder level, the company places a new order.

Inventory should be ranked according to their cost and importance. Expensive inventory items be monitored closely. Expensive items are called “A” items. Less expensive items belong to either “B” or “C” category. These set of inventory should be monitored on periodic basis.

A company can also adopt perpetual inventory system. It is a system used to track and record stock levels, in which every purchase and requisition is recorded. The perpetual inventory system shows the inventory balance at any point in time.