No matter the size of a business, good inventory management (and insurance) is essential.
Inventory is one of the most valuable assets to businesses that sell goods.
Inventory shortages can mean disaster for a company, particularly for stock-intensive retail, manufacturing, or food services companies whose finished products are at the core of their business.
Conversely, excessive inventory can also be detrimental, resulting in spoilage, theft, and damages. If inventory isn’t sold or used in manufacturing soon enough, then it may have to be destroyed or deeply discounted.
Knowing when to restock inventory levels, how much input stock to buy or make, how much to pay for it, when to sell it and for how much can get complicated.
Sherman Oaks Accounting & Bookkeeping powered by One Source Services, Inc. has seen small businesses manually track inventory on spreadsheets, relying on Excel formulas to figure out how much to order and when.
We’ve also seen larger companies use specialized ERP (short for enterprise resource planning) software and even proprietary software to manage inventory reorder points and quantities.
The best inventory management system really depends on the industry you’re in and your specific business circumstances.
For instance, perishable goods must have an extremely short turnover, as do time-sensitive products such as calendars, and it’s not viable for businesses to sit on an excess of this kind of inventory. One misjudgment of order timing or quantities could result in huge costs.
On the other hand, a manufacturer or seller of goods that will not spoil or go out of style can store large amounts of inventory for longer periods without worrying about it going bad.
One Source Services, Inc. dba Sherman Oaks Accounting & Bookkeeping manages inventory for a wide range of businesses across many industries, from restaurants and food manufacturers with very perishable stock to construction trades and engineers with inventory that does not go bad.
In our experience, aside from preventing stock spoilage, the trickiest part of managing inventory is balancing stock levels for businesses that have complicated supply chains and manufacturing processes.
There are two main ways of doing this: Materials Requirement Planning (MRP) or Just-In-Time (JIT).
MRP inventory management heavily depends on accurate sales forecasting. In other words, manufacturers must keep precise sales records in order to accurately plan for upcoming inventory needs. And, those needs must be promptly communicated to materials suppliers to keep stock levels up where they’re needed.
With MRP inventory management, inaccurate sales forecasts and inventory acquisition plans will result in an inability to fill orders. Being unable to meet demand can damage a company’s reputation with customers and drive business away to competitors.
When using JIT inventory management, businesses reduce waste by keeping only the inventory needed to produce and sell their products. This method saves money on storage and insurance costs and almost completely eliminates the need to discard or liquidate excess inventory.
The main risk with JIT inventory management is that if demand spikes unexpectedly, then manufacturing may not have the materials necessary to meet that demand. Even the smallest delay can cause a production bottleneck if the input does not arrive “just in time” and result in unmet demand and a tarnished reputation with customers.
With the right strategy and skill set, anyone can find low-risk investment opportunities with lots of potential.
Sherman Oaks Accounting & Bookkeeping powered by One Source Services, Inc. can help strategize, implement, and maintain the best inventory management system for your circumstances.