One of the most important things that companies should get right is a system that manages their level of inventory. How well – or how poorly – this is don directly affects the bottom line. Having a proper inventory management system for manufacturing and other industries can be the ultimate difference between success and failure.
Wasting time not keeping up with everything that is purchased to produce goods has real impact. Included in this is raw materials used within the business. Virtually anything related to supply and demand should be controlled properly.
Benefits of Inventory Management
The benefits of managing your company’s inventory is directly related to profits. Proper management helps to ensure your company realizes maximum profits from goods and/or services sold.
It will also guarantee that operations run smoothly. You save on labor costs because employees have less downtime waiting for deliveries of materials so they can complete different tasks.
Other benefits to correctly managing and tracking inventory include:
- Knowing stock levels so more can be ordered in a timely manner
- Tracking damage and loss
- Picking up errors when large shipments are delivered so you always know whether an exact order was received
- Tracking theft outside and inside the company
- Creating reports to highlight trends in purchasing so you have better management of stock
How Managing Inventory Affects Your Profits
Good inventory management practice is very crucial for your company to maximize its profits. Typically, this requires a careful balancing act between ordering too little and ordering too much. Either scenario can damage your company’s profits in more ways than one.
Having excess inventory will cost your company money when:
- Large quantities of stock take up space, which costs money in maintenance and storage
- You have to sell stock at a discounted price because it needs to be moved for other inventory that is needed immediately
- Spending capital on large orders takes money away from other investments that are necessary for business growth
Alternately, not having enough inventory on hand costs money by:
- Running out of stock on items where you are unable to fulfill production orders or make potential sales
- Being unable to meet customer demands can result in customers losing confidence in your company’s ability to service their needs
- Losing customers to competitors because you were unable to provide a product on time
Another way your company loses money is placing multiple small orders for a single product. In many cases, it is cheaper to buy bulk to receive discounts.
Keeping track of large inventory quantities is next to impossible without a good management system. The quality of your inventory system hinges on whether you see an increase in profitability.
Use this type of system to replace depleted items and to make it easy for employees to find what they need to keep the production lines going.