Inventory is comprised of those goods which are ready for sale. For a retailer that includes all the goods you buy in to resell.  For a manufacturer, it includes the finished goods. Many service businesses have some inventory in packaging or related products.  Most, but not all, businesses have some inventory.

Inventory is an asset – but only up to a point.  Too much inventory ties up your money and may go stale or obsolete before you are able to sell it. Inventory costs money: to buy, to store, to maintain.

Too little inventory may result in lost sales due to lack of choice or inability to deliver goods promptly. 

For businesses which have a large amount of money invested in inventory, careful management can help minimize risk and cost.

The basics of inventory management are knowing specifically what it is, how many there are, and where it is.  Obviously, it’s not good enough to know you have two boxes of nails without knowing what size the nails are, how many are in a box, and where to find them. 

How accurate is your inventory count?  I have consulted in enough businesses to know that a sampling of the inventory will often reveal large discrepancies between book inventory (what appears on your balance sheet) and actual.  I’ve seen as much as a fifty percent variance.  You need an accurate assessment of what inventory you have.  That means counting it.  If you have a lot of inventory, it’s time consuming, boring … and necessary.  There are inventory companies who will come in and do the count if you can’t face the work.

Once you have an accurate count of your widgets, maintain it.  Create a system so that you when you sell a box of large blue widgets the total number in-house is reduced by one box so that you know that there are four remaining boxes.  Not having that information immediately available may result in wasting money on more large blue widgets when you have a three month supply in the storeroom.

You also need to forecast your inventory requirements accurately to avoid spending cash which would be better spent elsewhere.  Good information on when you are moving what inventory may save you money.  

Some business owners have a need to take advantage of every discount offered on items they sell.  While the offer of a lower price is always appealing, consider what the cost to you will be in storage and maintenance of the items, whether they will spoil, whether they are a style.

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