How to improve your inventory management
The finances of your business have many different components. One of the most important components of your business finances is inventory management. If you are a business owner how effective you are at inventory management will have a direct effect on your cash flow and your overall profitability. The bottom line is that for almost any business inventory management is crucial for long term success. However, inventory management can be a challenging process. If a business doesn't have enough inventory then it risks alienating their customers and yet if it has too much inventory then it is tying up precious cash reserves that may or may not bring in a high return. This makes it crucial that any business owner learn all they can about inventory management. Here is what you need to know about how to improve your inventory management-
- Don't carry to much inventory-Business owners need to realize that inventory is really cash. If you are carrying to much inventory then you are simply holding cash that you cannot use for other needs. In addition, the cost of holding to much inventory goes far beyond the inventory itself. There is also the cost of storing and even moving the inventory that should be considered. When a business is inventory heavy it runs the risk of seriously damaging cash flow and exposing the business to financial risk.
- Do make sure that the inventory has a positive rate of return-This piece of inventory management strategy may seem obvious but many business owners overlook the need to have inventory with a positive rate of return. You want to focus on having inventory that can be sold for a premium price. This means that the longer your inventory sits in your warehouse or on the shelves the more money you could be losing. Savvy business owners will focus on carefully and concisely buying inventory in order to make sure that they are maximizing their inventory dollars.
- Don't overlook slow moving inventory-Many business owners make the mistake of not looking at slow moving inventory. They either allow themselves to be caught up with other demands or they assume that somehow their slow moving inventory will begin magically moving out the door. This is serious mistake. When you have a significant amount of inventory that is not moving very fast you are losing money. It is important that business owners are aware of this problem and capitalize on this stage of the product lifecycle. It is important to take proactive steps to get rid of it at the highest profit margin possible. If you fail to act on slow moving inventory it will create a serious negative impact on your business finances.
- Do get rid of dead inventory-The final category of inventory that should be considered is dead inventory. Many times business owners are hesitant to deal with dead inventory. They often feel that if they hang onto something long enough they will be able to sell it at a profit. The bottom line is that if you have inventory that has just been sitting for a long period of time you will need to take steps to move it. There are many different ways that you can do this. Some businesses will offer their dead inventory at a sale. If the business cannot sell the inventory and the business owner deems it unsellable then they may check with the vendor to see if they will take it back for a credit. Failing that many businesses will donate dead inventory to charity since it can give them a business tax deduction.