3 Reasons Inventory Control is Key to Profitability
Business owners invest and control the capital of their company, deciding how it is best used to stimulate growth. Sometimes though, they fail to remember that inventory is largely the same as currency in respects to accounting. In fact, maintaining effective control of inventory can make or break a business.
Indeed, inventory is a critical factor in ensuring the success of a business. Comprising all material goods in stock, including all of a company’s raw materials, projects in progress, backup parts and finished products, an inventory plays a massive role in a company’s ability to perform. Failure to properly monitor inventory can lead to errors and inefficiencies that plague a business.
While inventory management is a critical variable in your organization's decision making, it simultaneously represents a considerable percentage of your company’s current assets. Such an important element requires careful consideration and management. Too low an inventory count can cause delays, and lower customer satisfaction, while too much inventory takes up costly warehouse square footage and ties up large quantities of your company’s capital, which could otherwise be available for business development.
A company’s goal should be to ensure that inventory is always available, but not too overstocked. Finding the right balance can be difficult, as figuring out exactly the right amount of stock to order at any given time requires a knowledge of customer buying patterns and the amount of stock currently in place. To address this challenge, companies can implement IT business systems that help manage inventory levels, track locations, place orders and analyze sales patterns.
Benefits of System Managed Inventory
Properly managing inventory requires the real-time data visibility provided by an ERP system, which gives you a greater understanding of inventory requirement indicators. Inventory management systems also include capabilities for inventory tracking, serial number management, lot number assignment, barcoding, and integrated data with other business processes like sales and accounting.
There are two competing factors that are ever present when it comes to inventory management: the costs of maintaining a high quantity of inventory for efficient production, and sales measured against the goal of housing as little inventory as possible. Inventory management consists of more than just tracking inventory levels, the rate of sale, and stock item location of retail items. It also includes the management of raw materials, material requirements of projects in progress, purchase orders, and real-time inventory levels at the point of sale.
Inventory Accuracy and Organization
An ERP system can also improve tracking accuracy. Using management devices and tools such as barcode scanners integrated into your software, a business can better manage data. With barcode scanning replacing manual inventory data tracking, companies benefit from a more accurate count of onsite items thanks to the elimination of human error at the point of data entry. Benefiting from this real-time data, decision makers gain a better understanding of current inventory levels as well, with many systems taking it a step further.
What is meant by ‘a step further’ is that companies making use of an ERP system also benefit from an increased ability to trace products, from the receipt of the item all the way to the hands of your customers. Through improved lot and serial tracking, your company can leverage an increased understanding of product life cycles and demands. Many systems provide sub-location based inventory location data, affording employees the ability to quickly find inventory items, wherever they’re stored. This reduces turnaround time and contributes to increased profitability.
Optimized Inventory Levels
Accuracy extends beyond simply keeping track of the inventory you have on hand; it also involves how accurate your current estimates of optimal inventory levels are, and how well you can achieve those numbers. Without a system for organizing warehouse management, your business will have a difficult time understanding inventory levels, let alone trying to manage an optimal level. To reach this degree of planning, you’ll need access to sales orders, purchase orders and real-inventory visibility – all of which is provided for in an ERP system.
Improved Turn Around Time
The optimal inventory counts available through inventory management systems help make essential activities, such as storing, counting and transferring, quicker. With an ERP system for inventory management, items for picking are automatically available to the fulfilment team, providing them with real time, accurate instructions. This allows them to immediately get to work on completing the order for your customer. Through the elimination of a time consuming manual process, you are getting more bang for your buck.
Benefiting from a System that Works for You
While the purpose of the inventory is to be eventually sold off, the profit potential a business can achieve is based largely on how effectively they can manage that inventory. From the purchasing of items, all the way to the day they ship to the customer, every facet needs to be tracked, including potential post-sale requirements, like customer service and the returns management. All of this can be done better in with an ERP system for inventory management.