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When a business measures profits, it must take into account both how much income the business makes and how much it spends. Obviously, the profit is the difference between the two.
Businesses control both of these factors through effective inventory management. We at On Time Logistics have seen how efficient inventory management makes the difference between a so-so profit and an outstanding profit.
It’s important to remember that inventory management includes both the actual products a business sells and the components used to manufacture those products. If a product is not manufactured at the business, it’s vital to find a manufacturing partner that also has excellent inventory management skills.
A growing number of businesses manufacture their products. The problem that can occur is when the components needed to make the products are not managed well. When the right components aren’t available, the business must pay employees to be idle (and perhaps pay overtime later so the employees can catch up on production). Not having the right components also delays the ability to sell the finished product, thus reducing income.
Poor inventory management also leads to potential back ordering. This costs the business in several ways. For one, it often costs extra money to rush order new products. It can also cost money in the loss of relationships if back ordering is a frequent occurrence. No one wants to lose a good customer to the competition just because the product the customer wants was not in stock.
On the other side of the proverbial coin, poor inventory management can also lead to having large amounts of obsolete product on the shelves that either won’t be sold or will have to be heavily discounted. This creates an unnecessary income loss.
What can you do to improve inventory management?
Having a plan is the first step to efficient inventory management. This means you must have some idea what kind of products your customer will want; how long it will take for components to arrive; how long it will take to assemble the products you sell; and what kind of issues (like weather) need consideration throughout the year.
Another potential action step is using inventory management technology. Warehousing and logistics companies such as On Time Logistics offers in-depth inventory management software that allows you to know what you have in stock and where sold items are shipped. By not relying on paper (or an equally old-fashioned, high-maintenance system), you are helping decrease mistakes and creating an environment where the inventory information is available at all times.
What steps do you take to control your inventory?