The inventory of a business is considered as one of its most valuable assets. Inventory management plays an important role in enhancing the supply chain management of a business. A well-structured inventory management system is the foundation of an efficient business module.
In the case of retail and manufacturing industries, raw materials and finished products form the core of their business modules.
Shortage of inventory space can lead to a halt in production for a manufacturing unit and a reduction in sales for a trading business.
Hence, every company should implement an inventory management system which is capable of measuring real-time storage levels.
Keeping detailed information of your stocks help to enhance inventory control and offers easier inventory accounting.
Efficient inventory control allows you to have the correct amount of stock at the right time. It ensures that there is no unnecessary delay in production and removes any issues in the supply management system of the company.
Types of inventory
Business experts advise companies to sustain sophisticated inventory accounting before the data is put on the balance sheet.
The various categories that fall under an inventory account are –
- Raw materials
Keeping space in the inventory reserved for raw materials as they represent the products that a company purchases for its manufacturing process.
The work-in-progress inventory comprises products which are in the process of transformation into finished goods.
- Finished products
Inventory space reserved for finished goods are important as these products are ready to ship to the retailers.
Some companies also allocate inventory space for merchandise, which is a finished product that a business purchases from a supplier for future resale.
Inventory management methods
Following are some of the inventory management techniques businesses can follow –
MRP or material requirement planning is a method for business owners to enhance inventory management by acquiring raw materials, with correspondence to accurate sales records, in a timely fashion.
For example, by incorporating an MPR investment management system, a clothing manufacturer can ensure that materials required to produce jackets, sweaters, pullover, mufflers, socks, etc. are in stock before the winter season.
JIT or just-in-time manufacturing is an inventory management method that deals with keeping only the items in the inventory which is required for the manufacturing process.
Although this method consists of several risks, implementing this type of stock control can help in saving a significant amount of working capital by reducing storage cost and waste management costs.
The economic order quantity model is utilised by supply chain management systems to calculate the required number of units to be added to the inventory to reduce the holding and setup costs of storage management.
The EOQ model ensures that an adequate amount of inventory space is allocated; so, a business does not have to make frequent orders.
It removes the idea of excess inventory space. This helps in improving the cash flow of a company. As a new business owner, you can also improve your cash flow by taking an equipment loan.
4. Qualitative analysis of inventory
Business owners can also consider the following qualitative analysis techniques to improve their inventory management –
To ensure that you do not accumulate old inventory, it is advised to adopt the first-in-first-out method, so that old materials are used up first.
In several cases, companies may need to adopt the last-in-first-out technique for materials that need to be produced early as per the demand of the end-user.
DSI or days sales of inventory is a ratio that indicates the time required by a company to transform the raw materials and work-in-progress goods in the inventory into finished products ready for sale.
The DSI value represents how many days the current stock in the inventory will last; hence, a lower DSI value is preferred as it means that the current inventory will clear off in a shorter duration.
By adopting the above investment management techniques, a business owner can streamline their operations and apply for a business loan without any hassle. NBFCs such as Bajaj Finserv offer such loans to help firms purchase raw materials and production equipment.
Bajaj Finserv also brings forth pre-approved offers that make availing loans quick by simplifying the process. Such offers are also available on numerous financial products such as home loans, personal loans, personal loans, etc.
Maintaining your inventory is an important component of your business cycle. Considering the above investment management systems, you will be able to deal with your storage issues with ease.