The way you deal with the sourcing and management of inventory within your company can have a direct impact on your profitability. When you aren’t doing this correctly – it can stop your business operating as it should and in effect lose you money. We discuss further in this article.
Look at Inventory Cost
The cost of purchasing and producing inventory plays a large part in what your gross profit will be. Gross profit is the net sales minus your cost of goods. When there are less costs involved when it comes to purchasing inventory – this means the cost of goods sold will decrease. When there is a bigger gross profit, this can in turn translate to higher profit in general. Regularly check in and negotiate with suppliers to see if there are any savings that can be made anywhere.
Inventory Method
There are lots of different methods that can be used for inventory accounting. The most commonly used are First In, First Out, and Last In, First Out. If there are lots of different pricing fluctuations when it comes to inventory costs – this can then directly affect the costs of goods sold.
Level of Inventory
If you overstock – then you are creating storage expense, and potentially labour costs that aren’t necessary. You are also taking up valuable space. On the other hand – if you don’t have enough inventory, then you could suffer from a decrease in revenue and profitability. That’s why it’s important to make sure you get the balance right when it comes to your stock levels. Make sure if you have limited cash flow – that you don’t tie up your money in inventory that isn’t required at that stage.
Inventory Turnover
The turnover of inventory will have a significant effect on how profitable your company is. If you continue to stock items that are no longer selling, will slow down your revenue stream. If you have an accurate idea of which items are the most popular and selling the most – then this will ensure that you continue to get a high number of sales. You need to take the demand levels into careful consideration before you purchase any more stock.
How to Manage Effectively
There are great software’s out there that will help you to manage this effectively. For example, SysAid’s IT inventory management software will allow you to track what stock you have, give you a good idea of how fast products are going. This will allow you to take appropriate action so you can have the correct stock levels and increase your profit overall. It will also allow you to allocate the correct resource levels – so you can manage their time more effectively.
The key takeaway from this article is to understand that asset inventory and management can have a direct effect on the profitability of your business, and to take necessary measures to ensure this is regularly monitored and there are processes in place.
