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Inventory Costs Management Techniques

Simple Alliance, Kenya Limited

Inventory Glut Problems

You need to be aware that inventory management costs you money. Some management issues arising from excess or slow-moving inventory include:

  • Inventory constitutes tied up funds that are unavailable for other business functions
  • Maintaining inventory costs money through offering cleaning, security, and related services  
  • Stagnant inventory leads to cash flow problems 

Coping Strategies

It is clear that inventory that is stationery causes problems for your business. In view of this, you need to avoid falling into the common temptation of keeping unnecessarily superfluous inventory. To achieve this end, you require inventory control skills. A robust inventory control system will be of use to you. You can employ a number of inventory control methods, including:

  • Keeping just-in time inventory
  • Avoiding just-in-case inventory
  • Disposing of slow-moving inventory
  • Effectively managing inventory cycles and associated profit margins
  • Keeping a moderate inventory   

Avoid Just-In-Case Inventory

Keeping just-in-case inventory involves maintaining inventory that is excessive and is of a broad variety. Such kind of inventory only ties up your business’ cash.  

Maintain Just-In-Time Inventory

Like the manufacturers of airplanes, strive to have inventory that is of the required quantity at the appropriate time. This way, you are assured of fast-moving inventory. Your business finances are not tied up for long time periods.   

Dispose of Slow-Moving Inventory  

You need to understand that inventory that gathers dust within your store represents unproductive business capital. Thus, you need to quickly move in fast to sell off inventory items that have remained on your shelves for a long time. Even if you sell at a loss, make the sale. You benefit by untying cash which you can invest in productive ventures.   

Understand Inventory Turns, Profits Margins, and their Interrelationships  

You need to know that a short inventory cycle allows you to sell more units per commodity in a trading period. Conversely, a long inventory cycle will see you selling fewer units within a comparable trading period. This knowledge would appropriately inform your pricing strategy. You could lowly price fast moving commodities. This way, you realise shorter inventory cycles and more sales. The result is usually bigger profits.      

Keep a Moderate Inventory

You need to employ moderation while maintaining inventory. Your inventory needs to be adequate for smooth operations but not excessive. In fact, it is better to be slightly under stocked than to be overstocked. You need to always be in contact with suppliers who can shore up your inventory when need be.    

Managing inventory could be a costly affair owing to the direct cash expenses involved as well as due to the concept of cash being tied up in stagnant inventory. Unmoving stock makes you incur certain inventory costs. Your cash flow is constrained when inventory fails to move as fast as you anticipated. Moreover, large inventory cycles indicate low profit margins. You thus need to aspire to always have the optimal inventory levels, nothing too much or too little. This aspiration entails the application of suitable inventory control measures. The mounting of an inventory control system is also a welcome move. There are several inventory control methods at your disposal. One sure way of ensuring this is maintaining ‘just in time’, as opposed to ‘just in case’ inventory. Further, you need to be conservative when it comes to keeping inventory - keep only that which you need for smooth business operations. These measures will enable you to not only maintain optimal inventory levels, but to also minimise costs associated with inventory.

Copyright (C) 2016, Simple Alliance Kenya Limited

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