Nearly any business owner knows the basics of why inventory control is important, but you might not realize that true inventory control includes knowing a lot more than the amount of product you have. To have control over your inventory you need to know not only how much product you have in stock but where the product is in its lifecycle, what the cost of each item is, the labor and shipping costs, etc. You need to have clearly established inventory control processes in place that will help you maximize your profits, boost customer satisfaction and limit your inventory losses.
To create a solid inventory control procedure for your business, you need to learn a lot about inventory. This includes understanding the varying types of inventory, effective ways to count your inventory, and possible inventory losses you could be subject to.
Stock, or inventory, comes in a wide variety of sizes, shapes and readiness. Your inventory could be consumables, finished goods, unfinished goods, or even raw materials. Raw materials and consumables are similar in that both either need to be incorporated or used with other goods.
Proper inventory planning depends on the type of stock you carry. You will need to consider that price for consumables and raw materials can vary greatly over time. Look into whether or not you can buy in bulk for a discount.
Unfinished goods are helpful to stock up on if you expect to run into supply issues at some time in the future. Whereas finished goods should only be stocked up on when the demand for them is assured.
Loss of Inventory
No matter what type of inventory you have, you will have better inventory control when you ensure the quantity is correct. You need to track and plan for four different types of inventory loss, including damage, missing inventory, spoilage and samples.
Another reason why inventory control is important is that your inventory quantity can fluctuate. And to be successful you need to make sure your QuickBooks inventory is accurately aligned with what you physically have in stock.
A common inventory counting method involves a periodic company-wide count of your inventory. This count could take place weekly, monthly or yearly. The downside of this type of count is that you won’t be able to receive any new product or sell product because your goods will need to be stagnant while you take the count. Most companies do this count after hours using overtime pay, which can end up being expensive.
Another method is called cycle counting, and it is a tool of perpetual inventory. A cycle count involves counting a limited number of items every day for accuracy. Since each inventory items use is properly recorded, you can quickly discover issues and remedy them.
When you have a good grasp on your current inventory levels and costs, it is a good idea to calculate a safety stock. Your safety stock is a level of product that can cover your regular daily sales over the time period it would take for you to receive more product. You can calculate this timeframe by looking at your sales receipts to see how long deliveries typically take.
Inventory control is important for the health of your business. Having a good software, such as QuickBooks, in place to accurately keep track of your inventory can make or break your business’s success.