Many businesses that have neglected the implementation of proper inventory control processes fail to realize that this may have adverse effects on their company performance.
This is especially true for many small business owners, for whom inventory control simply means juggling manual records of inventory coming and going. However, what they fail to see is that these obsolete practices can potentially affect the ability of their businesses to compete.
Without good inventory controls, business owners will not be able to implement the LIFO (Last In, First Out) or FIFO (First In, First Out) systems. Unless a physical inventory check is done, there is no way of knowing at the click of a button the quantities and product types which are older than the average inventory age. Implementing LIFO and FIFO requires this information as a prerequisite.
How does this affect you? Well, if your inventory prices fluctuate, you will not be able to accurately determine the actual cost of the items sold if you can’t tell whether it was purchased with the old price or the new. This will affect your profitability. Another major problem area is the depreciation of your inventory. Items which have been in stock for too long will depreciate in value concurrent with their depreciating shelf life. If have ltoo much old stock in inventory, you may end up losing money just because of depreciation alone.
Also, without good inventory control, more time and money will have to be spent on hiring people to manage inventory. Some of these responsibilities include calculating what is out of stock, and manual inventory tracking.
However, if you have an inventory management system in place, your company will have a leg up on your competition. You will have the capability to know, within moments, the age of any item in your inventory. With this information you can therefore determine which item to push out first, if you follow the FIFO system. This leads to increased profitability through reduced depreciation costs.
Faster access to inventory information means the ability to respond to your customers fast. This is especially important if you are in a role that requires you to deliver products with a fast turnaround. In addition, you can reorder products that are out of stock with greater responsiveness, and your stock unavailability rate will also be reduced. This increases customer satisfaction levels as they now know that you are less likely to make them wait for products on order.
One of the greatest benefits of an inventory management system is its cost-effectiveness over the long term. Your initial investment into this system will help you decrease your spending on manpower costs. There will be less inventory checks, less paperwork and less manual tracking to be done, as all of these are already taken care by the system.
So, efficient inventory control means that you are able to respond faster to customer needs, increase internal productivity, have better recording clarity and accountability, reduce costs and ultimately increase profits.
Ken Town is VP Research and Technology at Invendia, a leading provider of Vendor Managed Inventory (VMI) and Web-based Inventory solutions.
