(Newswire.net — March 2, 2016) — For many companies, inventory is the largest asset owed by the business. Carrying enough inventory to meet customer needs may require a huge cash investment. If you purchase too much inventory, you’re wasting valuable cash. Companies that don’t carry enough inventory may lose customer orders. Use these tips to properly manage inventory levels.
Number of transactions
Along with cash transactions, inventory may generate the most activity in your business. Your company may have hundreds (or thousands) of customer sales per month. To restock your inventory, your firm may make purchases every week. As your business grows, so does the number of inventory transactions. You need to operate more efficiently.
Many firms make the mistake of relying on old technology. To save money, some businesses continue to rely on tools that are no longer effective. Since inventory is a critical part of your company, take a serious look at manufacturing resource planning software.
Manufacturing software can help you calculate your inventory levels. You can minimize your cash investment in inventory and also meet your customer needs.
Protecting your investment
Since inventory requires a large cash investment, it’s important for your business to protect that investment. One way to accomplish that is to perform a physical inventory count at least once a year. Some firms count inventory monthly.
Say, for example, that you manufacture sporting goods equipment. Here are some important steps to perform an accurate inventory count:
· Tag each inventory item: Each inventory item should be tagged. Each tag is numbered, so they can be tracked. The tag should describe the item, the number of items and the cost of each item. For example, you may tag a box of 25 silver metal baseball bats, each priced at $50.
· Print a detailed inventory listing: The accounting department should print a detailed list of inventory. This detail should include the box of silver bats and all of the other inventory items.
· Secure your warehouse: To perform the inventory count, the inventory warehouse should be closed. No inventory should be moved in or out during the count. Most companies perform their counts after business hours or on a weekend.
· Perform the count: Each person performing the count gets a copy of the inventory listing. The counters compare the information on each inventory tag to the accounting listing. As each item is counted, the tag is either marked or removed by the counter. Any differences between the physical items counted and the accounting department’s listing should be investigated.
Based on the inventory count, you may need to post accounting entries. Your entries ensure that your accounting records match the physical inventory counted.
Economic order quantity
Manufacturing software can compute your firm’s economic order quantity (EOQ) for inventory purchases. EOQ is a formula that helps you determine the ideal amount of inventory you should order, based on several factors.
Keep in mind that you incur costs to order inventory. Someone on your staff must place the order with your vendor, for example. You pay for shipping costs and the cost to unload and stock the inventory on your shelves. The EOQ formula considers your ordering costs, the time it takes to receive an order and your customer demand.