Top Three Methods to Accurately Manage Your Inventory
The Inventory is one of the assets of your company and it is considered as one of the major part of your business operations. For manufacturers, inventories are in the form of raw materials used to make and assemble their products. For resellers, their inventories are the products acquired and resold to customers. Hence, you really need inventory to do business.
This means, this has to be managed well. Managing your inventory is tedious with all of the ledgers and stock lists to maintain for every transaction and if you do not have the right inventory method or technique, it could cost your company thousands or if not, millions.
Take the case of Overstocking. Overstocking is a serious problem as this would mean that you are risking the liquidity of your cash. If the stocks you purchased will not be sold or released in due time, this would mean that your cash would have been sitting there and you cannot use it for other investments or other expenses in your business operation. You could also fall into the trap of understocking to minimize the cash outflow but will eventually end up not having the items when the opportunity to sell it arises.
Your company, however, can avoid these pitfalls by implementing some common yet effective inventory methods and by understanding the different types of inventory management which are as follows:
FIFO (First-In, First-Out)
FIFO method means that the first items or products put on the shelf are the first to be sold. This method is generally used by businesses whose inventory contains perishable goods or those products that need to be sold immediately. If the price of the products goes up, you can adjust the selling price of the goods. This can be a great help for you because you will be selling the old products you have at a very good price.
FIFO methods need a good warehousing practice to track the oldest products.
LIFO (Last-In, First-Out)
LIFO method means that the last item or products that arrived will be the first ones to be released. LIFO system is good for companies whose products are not perishable and will not be obsolete in the near future. Under LIFO, when the price of a certain product rises, the higher priced items are released first and the lower priced products are kept in an inventory. This is good to increase your business gross profit and lower your tax liability.
FEFO (First-Expiry, First-Out procedure)
FEFO is a method of inventory management in which item or products with the earliest expiry date will be sold first regardless of the date that the goods are received. This method is more demanding than FIFO. This is generally used for short-dated products such as vaccines, other medicines in Pharmacies and foods in grocery stores.
You can now choose which method is suited for you. You can try to use each method to get a first-hand knowledge on how they can help you. As a tip, a good computerized desktop or cloud-based inventory system can help you maximize your time and maximize your inventory. Take note that really good inventory systems should have the following:
- Balances management and report.
- Capability to run on either of the above inventory management methods.
- Automatic management of individual inventory ledgers.
- Ability to group inventory items to specific categories
- Ability to get real time reports with regards to balances and the total inventory value.
- Ability to set reorder points for each item.
- Ability to provide fast moving items and trending items reports.
Have you tried one or two of these methods in your inventory? How do these method/s help you? Have you tried using a computerized inventory system? Maybe this can help you out a great deal!