Proper inventory management is absolutely vital for companies in a number of industries both large and small. Inventory management is critical because the ultimate goal of successful inventory management is to minimize the inventory level while at the same time meeting customer expectations. When done properly the following results are achieved:
- Increased cash
- Profit improvement
- Higher customer satisfaction
Many companies operate not knowing the level of the total inventory until a year end physical count. This is not acceptable for a company that is trying to remain competitive in today’s business environment. A company who knows its inventory at any time without having to have a physical count and the impact on cash, profits, and responding to customer demands will beat its competition in the marketplace and increase the value of the business.
A company can increase accuracy in this vital area by doing the following:
- Have the software system in place that is right for your industry and company size. There are a number of systems that are targeted for specific industries. The right system used by people who are properly trained will give accurate inventory information at any time of the day by those who need it most.
- Implement cycle counts. This is simply test counting certain areas of inventory at regular intervals throughout the year and comparing these counts to system records instead of waiting until year end. Performing and comparing cycle counts consistently will build confidence in the system and alert management to problems timely.
- Have full inventory counts more often than once per year. Some companies have full counts quarterly or semi-annually.
- Implement proper internal controls. Have strict controls over who is able to access inventory both physically and in system records. There should be segregation of duties between those who order and receive inventory from those responsible for keeping systems records updated.
Proper, strong inventory management will result in efficient and profitable companies.