What is Inventory Management?
The goods stored in stores, shops or warehouses for a company are called it’s inventory and the process of managing them is what we call Inventory Management. While managing inventory, company keeps tab on the weight, size, amount, price and location of the goods such that they can be made available for sale.
So, what the main goal of Inventory Management?
The main goal taking the steps to manage the inventory is to reduce the cost of stocking goods and make optimal use of stored goods within available time.
Let’s take a detailed look at why inventory management is important for the retail businesses.
- To avoid spoilage: For the businesses dealing with products with expiry dates, it is very crucial to make sure that the products are sold out within time. Once it
crossor even near expiry date, they are likely to be left unsold. Therefore, with proper monitoring of products and their in-out date, you can make sure that you sold off your products within good time.
- To Avoid dead stock: Dead stocks are a little different from spoilt stock. Dead stocks are stocks that have become unsaleable not because of expiration but various other reasons like out of season, out of trend, etc. However, it is to be noted that deadstock can be geographical. Therefore one thing that may be out of style here, can still be sold somewhere else. If a business owns multiple stores across various regions, they can play with stocks and make optimum sales. This monitoring is only possible if a business takes care of managing its inventory well.
- To save on storage cost: Warehouses often charges the business depending on the item types as well as quantity. Say you store an item in a large quantity that is actually a
slow movingitem. So it will stay in warehousefor longer period costing the business more. It should be kept in mind that moneyspent in managing inventory doesn’t really contribute towards business growth directly. Therefore it is important to take care of money spent towardsinventory management.
- To improve cash flow: Cash flow is simply the availability of cash in
businessto make purchases. Note that cash is not your business value or assets. Just for explanation, say you buy a stock, you pay money (cash). Once bought, the cash gets blocked though you still name products of the value. However, you cannot further make purchasewith it. So the Question is, when the cash will be freed? Once the product is sold and money is retrieved. Maintaining a good inventory gives you a rightpicture of how much goods to stock as per sales such that cashflow of your business doesn’t get blocked for long and allow you to plan.
In our next blog , we will discuss about some effective tips that can help you with managing your inventory. Put your comments below if you any suggestion or query and stay tight to this space.