What is inventory management?
Inventory management simply refers to the handling and controlling of a company’s non-capitalised assets. For most retailers, this involves the overseeing and controlling of finished items that are ready to be sold.
The fundamental goal is to keep inventory levels balanced at all times without ever having too much or too little product in stock. So staying on top of ordering, forecasting and storageare key parts of good quality inventory management.
Why is inventory management important?
A retail business is useless without its inventory. Yet holding this inventory ties up a lot of cash and resources. Being able to manage it effectively and efficiently is therefore vitally important to cash flow and a great way to save money.
Save on storage costs
Warehousing costs tend to fluctuate based on how much product is being stored and for how long. The longer an item sits on a shelf without being sold, the more it costs a business.
Good inventory management results in items spending less time sitting in the warehouse before being sold. And this means reduced costs for storing them.
Avoid spoilt or dead stock
It’s not just storage costs where a retailer is potentially losing money from poor inventory management. Perishable items will be entirely wasted should too much be ordered at one time or it isn’t stored sufficiently.
Too much stock that becomes ‘dead’ due to going out of season or style is similarly wasteful. Better managing of inventory helps avoid wasting money on too much spoilt or dead stock.
Improve cash flow
Any inventory is likely to have been paid for upfront. But until this stock is sold, it’s just a hole in the bank balance and a dip in cash flow.
Managing inventory properly means cash isn’t drained on buying too much stock at any one time.
This leaves more money in the bank to spend on growth instead of inventory.