Barcode labelling has changed the face of labelling. In recent years, QR codes have also come up as labelling solutions. These labelling techniques streamline the entire labelling process and help you classify goods quickly. 

Proper inventory management is the key to running any successful business. It does not matter whether your business is big or small. When you follow efficient inventory management techniques, you can automatically achieve good results in your business. You can use spreadsheets or make physical entries to manage inventory. However, using a barcode inventory management system is more efficient in terms of time, effort, and cost. 

In this article, we will discuss all aspects of a barcode inventory management system for a small business.

What is a Barcode?

A barcode is a picture that represents data visually. It may contain numbers or text or a combination of both. The picture stores the information of the product, and when it is scanned using a barcode scanner, this information can be transferred to a computer.

There are two types of barcodes:

1. 1D Barcodes

These barcodes are one-dimensional. They are represented with a set of vertical black lines on a white or any light-coloured background. The space between the lines stores the information about the product. The scanner reads this information to identify the product.

2. 2D Barcodes

These barcodes are two-dimensional, typically square, and are a combination of dots and shapes. This combination stores product information. 2D barcodes can store more information than 1D barcodes. Apart from product information and number, they can also store website information. This information can direct you to the company website when you scan it. QR codes are a form of 2D barcodes.

You can create barcodes using barcode software. Every company decides what information they want to include on the barcode. It also chooses the barcode format. With this information, the barcode software generates a barcode that is readable by a barcode scanner.

Why Should We Use Barcodes for Inventory Management?

Whether your business is small or big, efficient inventory management is a must. You must always know what is in your inventory and must order and purchase new items whenever required. 

Using spreadsheets or books to maintain inventory is the traditional way of inventory management. However, with technological advances, you can use barcode inventory management systems to streamline the entire inventory management process. 

Even if you have a small business with limited inventory, managing inventory manually quickly becomes overwhelming. There is also the chance of human errors taking place. As your business grows, a barcode inventory management system will help you quickly organise your inventory.

A barcode inventory management system gives you more accurate results than manual methods. You can use barcodes to easily find out what is in stock and what is running. When a customer purchases an item, you scan its barcode. The item gets removed from the inventory immediately. Thus, you have an accurate and real-time idea of the number of items in your inventory. This will help you take proper decisions as you conduct business throughout the day.

Additionally, by using a barcode inventory management system, you can scan the barcode and instantly transfer all the data to a computer. Whenever a customer purchases a product, you can check them out faster. Instead of manually checking the price and quantity of each product and entering it, you can simply scan the barcode, get all the information along with the price, and get the total amount of the items purchased within minutes accurately.

How to Build a Barcode Inventory System for a Small Business

If you have a small business, you might think it is too much work to do barcode labelling for your inventory. However, creating a barcode for your inventory is much simpler and cheaper than you might think.

To create a barcode, you will first need to create a product code. This is also called Universal Product Code (UPC) or stock-keeping unit (SKU). UPCs are used for most products and are standardised. You must register with Global Standard 1 to get a unique UPC for your company. 

A UPC offers many benefits like protection against theft, allowing online transactions, offering online information about the product, etc. This helps you grow your business and extend to e-commerce sites as well. Using UPCs for inventory management is one of the most efficient ways to manage inventory. UPCs generally consist of 12 digits and can be used for internal as well as external purposes.

If you do not have UPC, you can use the SKU system to manage inventory. An SKU number is unique to each store, consists of 8 digits, and can be used for internal inventory management purposes like stock taking, etc.

Next, you must create a barcode for each product code. You can use barcode software or an online barcode generator to create unique barcodes for different products.

Then, you must print your barcode using inkjet or laser printers on a label sheet. Then, attach the labels to the relevant products. 

The whole process takes very little time, and money compared to the manual entry method and is more efficient and accurate in the long run as well.

Invest in a good barcode scanner. If you do not have a barcode scanner, you will not be able to get the product information from the barcode.

Conclusion

Creating and maintaining a barcode inventory management system is very simple and cheap. All you need to do is invest some time initially to create the barcodes. Once you have done that, it is simply a matter of printing out labels and attaching them to the products. 

The barcode inventory system is very efficient and will benefit your business in the long run. You can manage inventory, create barcodes and have a seamless experience on myBillBook

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If you are new to inventory management and not sure how to properly maintain the supply chain, this article will guide you through the inventory ratios and formulas you will need for proper and efficient inventory management.

Why Do I Need Inventory Ratios and Formulas?

Inventory management includes a variety of processes including tracking stock, ordering, and purchasing inventory. If you approach inventory management randomly, it will be chaotic and complex. However, using proper inventory management ratios and formulas, you can monitor and bring up the standard of each process. Factors like sales performance and turnover affect inventory management. Analysing these factors can give you an accurate idea of your business’s performance. You have to use formulas like inventory turnover ratios and the cost of goods sold to determine the direction you have to take your business to new heights.

Common Inventory Ratios

Here are the seven most common inventory formulas and ratios:

1. Cost of Goods Sold

Cost of Goods Sold=Beginning Inventory+Ending InventoryNumber of months in accounting period

The cost of goods sold (COGS) formula measures the value of your inventory and gives you an idea of the overall performance of the stock in your inventory. This formula is very important while planning for future inventory management. It can also be used as a deductible item while filing taxes.

However, if you are a manufacturer, this formula will be more complex. You will have to see how many items of a particular kind you have sold and how the manufacturing process has matched the demand for a particular item in your inventory. You will have to use this formula to calculate COGS in this case:

Cost of Goods Sold=(Cost of Inventory at the Beginning of the Year)+(Additional Inventory Costs)-(Cost of Inventory at the End of the Year)

2. Inventory Turnover Ratio

Inventory Turnover Ratio=Cost of Goods SoldAverage Inventory

Inventory turnover means the rate at which a product is sold and replaced in a certain period of time. Typically, the higher the inventory ratio, the better. It means that the items in your inventory are being sold and replaced at a high rate. However, each industry has a different inventory turnover ratio. While some have an inventory turnover ratio of only a day, others may have months or even years as their turnover ratio. Hence, it is important to compare the inventory turnover ratio of your business with a similar business only. 

The inventory turnover ratio is an important factor in measuring the performance of any business. It also gives you an idea of the items that do not sell easily. Hence, using this data, you can order more or less of the items you need in your inventory so that you always have the popular items in stock while removing the slow-moving ones. 

3. Average Inventory

Average Inventory=Ending Inventory Balance+Beginning Inventory Balance2

Average inventory calculates the average value of the inventory in a certain period. This average is then used while calculating the inventory turnover ratio. By itself, too, this value gives you an idea about the performance of any given item in your inventory. 

Usually, the average inventory is calculated by month and hence, the sum of the inventory is divided by 2. If you wish to get the average inventory of a season, you should divide by 7 and for the average inventory of a year, you should divide by 13.

4. Sell-Through Rate

Sell Through Rate=Units SoldUnits Received

The sell-through rate measures your purchasing and order rates. It helps you calculate how an item in your inventory is doing on the sales front. This figure is important for planning new orders and also making strategies to sell the stock already present in your inventory.

5. Days’ Sale

Days’Sale Average=365Industry Turnover Ratio

The days’ sale ratio measures the average number of days it takes a product in your inventory to sell. Typically, the number should be low because the lower the number, the faster the movement of the product through your inventory. This formula will help you decide on purchasing patterns. You can calculate this ratio using the inventory turnover ratio.

6. Ending Inventory

Ending Inventory=Beginning Inventory+Purchases-Cost of Goods Sold

Ending inventory measures the quantity of an item at the end of a certain time period. It is also known as closing stock and allows you to calculate your business’s financial standing at any given time.

You can use different inventory calculation methods like first in first out, last in first out, etc. to measure the ending inventory value. 

7. Average Stock Level

Average Stock Level=Minimum Stock Level+12of Reorder Quantity

The average stock level measures the number of items you have in stock in your inventory. You can compare this figure with the three critical figures of minimum stock level, maximum stock level, and danger stock level in your inventory.

Conclusion

All the above inventory ratios and formulas standardise the inventory management process. You can get a clear idea of the performance of your business, and you can create new plans to increase your profits. With efficient inventory management using these ratios, you can streamline the whole process and always be on top of your inventory issues.

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It is the rate at which a company orders and replaces its stock depleted by sales. It includes all the items in a company’s stock that will be sold. It is calculated to help a business make informed decisions regarding pricing, marketing, manufacturing, and purchasing. It also allows you to have a rough idea of how your company is performing and in which sector.

When inventory turnover is calculated and managed correctly, you can ensure that your company never runs out of supply. It also means that company sales are optimum and the costs are managed correctly.

What is Stock Turnover Ratio?

The inventory turnover ratio is also known as the the stock turnover ratio. It is used to calculate the rate at which inventory is managed over a certain period. The inventory turnover ratio formula can be used to calculate the number of days it takes to sell the inventory in stock.

How to Calculate Inventory Turnover?

The turnover ratio formula is derived by dividing the average inventory by the cost of the items over the same period. If the inventory turnover ratio is high, it means that the business is doing good sales. 

The inventory turnover ratio formula:

Inventory Turnover Ratio=Cost of Goods Sold/Average Inventory

Cost of goods sold is the total cost incurred in manufacturing or sourcing and marketing a product and sold by the company over a certain period. The cost of goods is found on the company’s income statement.

Average inventory is the mean amount of inventory during the same period. Some companies use an average amount while others use end-of-period values.

Maintaining inventory turnover is important as it gives you an idea of how the company is performing.

Why is Inventory Turnover Important?

Inventory is the number of items a company has in stock. This includes raw materials, materials undergoing manufacturing, and finished products that can be sold. For retail stores, inventory is the sum of finished goods. For example, shirts in clothing stores or cereal boxes at a supermarket.

Inventory turnover is the number of times a company replaces its stock that has depleted due to sales during a certain period. Thus, inventory turnover helps the business owner analyse costs for sales.

There are some key points you must remember while generating inventory turnover ratio:

• Higher inventory turnover ratio means better sales: A higher inventory turnover ratio means that the goods in your company are being sold and replaced at a higher rate. Hence, there is a greater demand for your products, and your business is doing well.

• Low inventory turnover ratio means lesser sales: On the other hand, if your company generates a low inventory turnover ratio, the products you manufacture or source are not being sold actively. Hence, it indicates a decline in sales for your company.

• Inventory turnover ratio shows inventory management: The inventory turnover ratio shows how a company does its inventory management. In some cases, a company may manufacture or source too many goods that remain unsold for a long time. On the other hand, a company may not manufacture or source certain goods enough, so they are always in short supply. Both these cases affect the business adversely and need to be managed efficiently for optimum business output. The inventory turnover ratio helps accurately calculate the inventory turnover rate, thus letting you stock items appropriately.

• Inventory turnover ratio shows syncing within various departments: Inventory should match the number of items sold. It can be unprofitable for a company to have items in its inventory that don’t sell. A company’s sales and purchase departments must work in sync with each other for maximum profit. If the sales department hasn’t sold an item, the purchasing department should not order more of the same item and vice versa.

Inventory Turnover Ratio Explained

As mentioned above, inventory turnover is the amount of inventory sold and replaced over a certain period. To calculate the inventory turnover ratio, the cost of goods sold (COGS) is divided by the inventory of the same period. While some companies take an average of the inventory during the period, others prefer to take the last quantity at the end of the period. You can use the end quantity if your business is uniform throughout the entire period.

To calculate the average inventory, you have to use the following formula:

Average Inventory=Inventory at the beginning+Inventory at the end2

You can also use this formula for calculating average inventory:

Average Inventory=Sum of all the inventory in a given period number of months in the same period

How Does Inventory Turnover Work?

Most companies prefer using average inventory quantities because the average evens out sudden peaks and valleys from the changes during a certain period. For example, a certain day might have a sudden peak value in an otherwise normal month. Hence, average inventory gives a more balanced measure of the inventory.

For instance, during festivals like Diwali, there is a massive surge in the purchase of fabrics and apparel. However, the months preceding and following the festival show depleted numbers of sales. 

However, some companies use the ending inventory values for the same period as the COGS is calculated. 

The inventory turnover ratio formula can be used to calculate the time it will take for the entire inventory at present to be sold. This time is calculated in terms of days and is called Days Sales of Inventory (DSI).

Days Sales of Inventory

Days sales of inventory (DSI) is the number of days it will take for the current inventory to sell out completely. As with the inventory turnover formula, DSI is also calculated using a simple formula. It is the inverse of the inventory turnover ratio multiplied by 365.

DSI=Average Inventory/COGS x 365

As it is the inverse of the inventory turnover ratio formula, the rules for DSI are different too. The lower the DSI is, the better because it means that the inventory will be sold out in a short time. However, DSI values can be different for different companies. For example, a company that sells groceries will have a lower DSI than a company selling fabrics. Hence, it is important to compare the DSIs of companies of a similar type.

Example of Inventory Turnover Ratio

ABC Textiles is a textile manufacturer specialising in menswear. In the fourth quarter, Q4, which is its busiest quarter, the COGS of the business was INR 50,000, and the average inventory was INR 5,000. Using the inventory turnover formula, we have to divide INR 50,000 by INR 5,000. The inventory turnover is 10.

Now, we will calculate the DSI of the company, that is, the time it will take for the company to sell its current inventory. Using the inverse of the inventory turnover ratio formula, we have 

500050000*365=36.5

Why Does Inventory Turnover Matter?

Inventory turnover is very important to indicate the performance of the company. If the demand for a certain item decreases, you might be still holding on to the item in your inventory without the hope of a sale. In such cases, you might find it profitable to unload the item by offering discounts or incentives to the customers. These techniques help you sell the item and hence reduce the inventory in stock.

As a business owner, you need to maintain a high inventory turnover. A high inventory turnover ratio means that sales are earning profits and your business is flourishing. You can make quick and informed decisions that result in profitable deals for both you and your customers. The inventory turnover ratio also helps you maintain customer relationships by stocking their favourite items according to their demand. 

You must remember that a sudden high inventory turnover ratio might mean that your company is not keeping up with demand. There may be delays in the supply chain, or the market might see a sudden spike in demand for a particular item. Maintaining an inventory turnover ratio regularly will help you decide whether you need to raise prices, order more supplies, add more suppliers to the list, or do something else to balance the supply-demand cycle.

Factors to Consider While Calculating Inventory Turnover

Here are some things you need to keep in mind while managing inventory:

1. Price

Usually, a manufacturer sets the maximum and minimum price for an item. However, you can decide if you want the item in your inventory and whether it will balance your inventory. If you think an item may cause your inventory turnover to go down, you can reconsider.

1. Capital investment 

If you wish to match supply to market demand, you might consider doing business with companies which supply small amounts of items over a long period as per your demand. This might cause your capital to be tied up with a limited number of suppliers, but you will not have to worry about supply chain issues.

1. Total costs

While calculating the COGS of your inventory, you must also add other related costs to the actual item cost. For example, you need to factor in warehouse rent, interest, transportation, insurance, etc., while calculating the value of an item.

Best Inventory Turnover Ratio for a Business

Typically, it is considered that if the inventory turnover ratio is high, it is better for the company. A low inventory turnover ratio means that the sales of the company are down or there is a decreasing demand for the goods.

However, there are certain exceptions to this. For example, the automobile industry has low inventory turnover rates because nobody buys a car a month after getting a new one. Other industries are exceptions to the rule.

If the inventory turnover ratio of your business is too high, it does not mean that your business is doing good sales. It means that your company cannot keep up with the market demands. In such cases, the purchasing department needs to meet the sales department, know about the demand, and modify purchasing plans accordingly.

High-volume, low-margin industries such as food industries and clothing industries usually have a high turnover ratio. Low-volume, high-margin industries such as automobile industries and jewellery industries have a low turnover ratio.

You have to consider various factors, including customer preferences, seasons, sales patterns, etc., to determine the ways to manage your inventory and maintain a healthy inventory turnover ratio. In some cases, business owners use the cost-to-retail method of inventory management that measures the ending inventory value by calculating the ratio of the inventory cost to the retail price.

What Can I Do If My Inventory Turnover Ratio is Low?

If your company’s inventory turnover ratio is low, you need to analyse your and your competitors’ inventory. Do your competitors have some other more popular products? Are they offering a lesser price for the same product? Are they sourcing products from a cheaper supplier?

Once you get the answers to these questions, you have to modify your sales strategy. If there is a new, more popular product in the market, you can give away the product that you already have with the new product for free. This way, you can deplete the inventory. You can also offer discounts and offers on the product for more movement. You can also stop ordering the product in earlier quantities.

You also need to consider the performance of your employees. Is the sales team doing its best to sell the product? What strategies can be adopted to make the product more attractive to the customer? It might be time for you to come up with new ideas.

What is the Ideal Inventory Turnover Ratio?

The ideal inventory turnover ratio for most industries is around 5 to 10. For industries with low-volume, high-margin such as a car company, the ideal inventory turnover ratio will be much more than this. For industries with high-volume, low-margin such as grocers, the ideal inventory turnover is much lesser than five as they need to sell their products quickly to maintain a fresh supply.

Other Uses for Inventory Turnover Ratio

Besides estimating the company’s performance, the inventory turnover ratio can be used to improve various other aspects of business:

1. Trend analysis

An inventory turnover ratio helps you analyse upcoming trends depending on market demand and the unsold inventory in stock. You can make decisions regarding purchasing patterns and order more or less of an item so that you have more control over your inventory.

2. SKU metrics

A company measures its inventory turnover ratio generally at the SKU (stock-keeping unit) level or the segment level to have more control over individual stock levels. Segmentation is the process of creating SKU segments according to your company’s preferences.

3. Pareto principle

The Pareto principle or the 80/20 rule applies to most businesses. In this case, it means that 80% of your sales revenue will be generated by 20% of the SKUs in your inventory.

Practical Uses of Inventory Turnover Ratio

One of the main ways to use inventory turnover ratio practically is by optimising inventory management methods. Here are some ways in which you can optimise the process:

1. Streamlining the supply chain

The cheapest suppliers may not always be the best choice for your business. In some cases, you need a faster delivery or more quantity in place of costs. You should know how to maintain a balance between costs and reliability. Streamlining the supply chain process can benefit your business.

2. Managing your pricing

You can realise greater margins on items that are in huge demand to cover the costs trapped by unsold and immovable inventory (also known as obsolete or dead inventory). If you are sure the inventory is not going to get sold, you can offload it in a way that helps you cut your losses like donating it to charity and claiming tax exemption.

3. Forecasting

Inventory reports and inventory turnover ratios give you data that lets you analyse and predict upcoming trends in customer behaviour. You can make plans to include the relevant products along with the slow-moving items in the inventory to realise a greater margin.

4. Improving your ranking

You need to periodically compare your inventory turnover ratio with your peers in the industry. By studying these ratios, you can create new strategies to improve your inventory turnover ratio, thus, improving your ranking among your peers in the industry.

5. Automating orders

When you automate your order processes, you can increase the efficiency of your business. Automation is also time- and cost-saving. However, when you use software that manages inventory while completing orders, you ensure that you always have the relevant inventory in stock in enough amounts. This gives you better control over your inventory and less scope for errors.

Conclusion

The inventory turnover ratio formula gives us a fair idea of how the company is performing in maintaining inventory and turning it into sales. The ratio also helps us with inventory cost management and proper inventory management. 

In addition to this, the inventory turnover ratio helps a business owner understand how well the items in the company are being sold. If the inventory turnover ratio is less, it means that the sales are down or that the market is not performing well. It is always better to have a higher inventory turnover as it indicates that the inventory in the company is sold at a good rate.

However, a high inventory turnover ratio could mean that the company is losing sales. This happens when the inventory is lesser than the demand. In such cases, it is better to compare the inventory turnover ratio with the companies in similar fields that are managing their inventory efficiently.

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Only by adopting effective methods of inventory management as per the standard the inventory management techniques will be successful. Depending on the size, kind, and product offerings of a business, several different techniques of inventory management can be implemented. To understand which inventory management techniques will work best for your firm, you may refer to the following list.

1. ABC Analysis:

This method of inventory management identifies the most popular and least popular stock types. The ABC inventory management technique is a strategy that organises products into categories according to their level of significance, with category A being the most valuable and category C being the least valuable. More valuable items should be given greater attention.

Although there are no definitive principles, ABC analysis prioritises annual consumption quantities, inventory value, and pricing significance. The key is to run each category separately, especially when selective control, budgeting, and allocating people are needed.

2. Batch Tracking:

This works well for perishable goods. If a batch-specific product has a problem, you may trace and recall it easily. In addition, expiry dates and damaged items can be supervised by grouping comparable items together.

3. Bulk Shipments:

This inventory management technique is predicated on the idea that it is nearly always more cost-effective to buy and transport commodities in large quantities. As a result, shipping in bulk is one of the most prevalent methods in the market, and it may be utilised for products with large customer demand.

This strategy considers unpackaged supplies that suppliers immediately load into ships or containers. It requires purchasing, storing, and shipping large quantities of inventory. These are an excellent choice for your organisation if you regularly place large unpackaged product orders. Such examples include petroleum, cereals, and gravel.

4. Consignment:

Consignment is when a wholesaler gives inventory to a retailer but continues to retain ownership of the goods until it is sold. At that point, the retailer will buy the stock that has been deleted from the wholesaler’s inventory. From the retailer’s standpoint, selling on consignment typically entails a significant amount of demand uncertainty, whereas, from the wholesaler’s perspective, it typically involves a considerable amount of confidence.

When your business uses consignment inventory management, it won’t pay its supplier for a product until it’s sold. Additionally, the inventory will remain the property of that supplier until your organisation sells it.

5. Cross-docking:

Cross-docking is unloading incoming semi-trailer vehicles or railroad cars straight onto outbound containers, commercial vehicles, or rail cars. When utilising these kinds of inventory management techniques, you will unload things from a supplier vehicle into a delivery truck in a particular sequence. As a result, warehousing would be largely eliminated.

6. Dropshipping:

In dropshipping, the supplier distributes products directly to the buyer from its warehouse. Among the others, this is an effective inventory management technique that avoids the cost of keeping inventory altogether. In addition, customers’ orders and shipping information can be sent automatically to your manufacturer if you have a dropshipping agreement.

7. EOQ: Economic order quantity

This calculation demonstrates how many inventories a business should order to save holding and other costs. Economic Order Quantity approach focuses on determining how much inventory to order at any time and when to place the order. According to this model, when the inventory approaches the reordering level, the business owner will place a new order for more of it.

The EOQ model contributes to the reduction of ordering expenses and carrying costs incurred during the process of placing an order. In addition, the EOQ model assists the business in putting the appropriate amount of inventory.

8. FIFO and LIFO:

First in, first-out (FIFO) is that the oldest stock is moved first. On the other hand, the principle of “last-in, first-out” (LIFO) emphasises that prices almost always go up; hence, the purchased inventory will be the most expensive and sold first.

First-in, first-out is the practice of selling to consumers the items that reached your inventory first. This is one of the inventory management techniques that assure you that your customer receives only fresh products. You should use this if your products are perishable or prone to deterioration.

Last-in, First-out is acceptable if the things you sell have a long life span while being stored for lengthy periods. For example, it’s like selling electrical wires or other construction supplies that can still be sold later. LIFO saves time by organising inventories by delivery date.

9. JIT: Just-in-time inventory

This inventory management technique is applied by businesses to keep inventory levels as low as possible before ordering any more. With Just-In-Time (JIT) inventory management, a business’s inventory is kept minimum. However, it is a risky strategy because inventory is only purchased a few days before it is required for distribution or sales.

Organisations benefit from JIT’s potential to reduce inventory holding costs while also eliminating the accumulation of “deadstock,” or capital that is frozen and waiting for use.

However, it also necessitates that organisations be very adaptable and capable of handling a far shorter production cycle.

10. MRP (Materials Requirements Planning):

Material Requirements Planning is the technique of inventory management in which manufacturers order goods in consideration of forecasting demand. The MRP system incorporates inventory-related data from several business departments. The manager will properly place orders for fresh inventory with material suppliers based on market data and demand. In addition, this system manages factory planning, scheduling, and inventory control.

11. Perpetual inventory control:

This technique of inventory management involves documenting stock sales and consumption in real time. This is your inventory’s continual monitoring. It keeps tracking all the changes to your stock in real time, like when an item is bought, when a good is moved, or when a product is delivered from your supplier.

12. Safety stock:

This refers to having additional stock of the goods in your warehouse to avoid running out. For example, when you anticipate a possible shortfall on the part of the supplier or a problem with delivery, this ensures that you will have the products in stock in your warehouse.

In addition, it ensures that you are always ready for any circumstances or events that may include a sudden increase in the number of sales of a particular product, even though this inventory management technique increases the expense of managing your inventory.

13. Fast, Slow & Non-moving (FSN) technique:

The FSN technique of inventory management is highly effective at managing obsolescence. Some inventory goods are needed regularly, while others are not. So, this method sorts inventory into three groups: inventory that moves quickly, inventory that moves slowly, and inventory that doesn’t move at all. Based on how much inventory is being used, a new order for inventory is made.

How to make inventory management more effective?

1. Pay attention to what you need

An inventory-filled warehouse might be a challenging task. To make it easier to keep track of everything, focus on the most critical things first. Customers will not likely want the same number of each item in your warehouse. If you keep a steady supply of your best-selling products on hand, you’ll be well to satisfy your customers.

2. Collaborate with suppliers

Businesses that depend on inventory must maintain healthy relationships with their suppliers. Likewise, it’s important to build good relationships with your business’s key suppliers to get reliable supplies, get competitive prices, and keep up with new trends that could affect your business.

3. Establish a method for the inventory control

Order amounts, replenishment cycle periods, safety stock, predictions, seasonality, and more are essential. Make adjustments to each process so that they are customised to your specific business, and keep note of what is successful and what is not. It can be better to make a big change in one area than make a few small changes everywhere.

4. Use the real-time information

When information is accurate and relevant, it may be a powerful tool. Real-time data and analytics, including integrated inventory management, forecasting data, automatic ordering, and customised safety stock, can significantly impact your organisation. Consider adopting perpetual inventory management systems for the most reliable data, as it is the best among the methods of inventory management to ensure you always have access to the information you need.

5. Become digital

The development of mobile technologies has transformed inventory management. Scanning barcodes, for example, expedite the receipting and tracking of items and helps eliminate errors. The use of sales apps, on the other hand, provides mobile salespeople with access to inventory data. In your warehouse, you are no longer required to be connected to a computer. Whether you’re at work, on vacation, or somewhere else, you can closely watch critical business activities.

6. Establish a strategy for inventory management

Inventory management on an ad hoc basis can only take you so far. To effectively manage your inventory, you will require an inventory control system. It is critical to select an appropriate system for your company’s specific requirements. For example, when Sam’s company was just getting started, she might have been able to control her inventory with the help of spreadsheets. On the other hand, a global stock-based firm like Amazon needs a bespoke, comprehensive solution to handle its many daily requests.

Conclusion:

Inventory control is a crucial aspect of every organisation. Excellent inventory management software can decrease costs like warehousing, inventory carrying, ordering, obsolescence, etc. It improves the industry’s supply chain. Managers can predict when to place inventory orders based on production. Due to inventory management and control, businesses must take all required measures. If you have an inventory management system, it may help you perform these approaches to your company by integrating seamlessly with other software, which will make you more efficient.

Read more relatedarticles:

Guide To Invoice
Guide To Inventory Management
Guide To Inventory Control
Guide To Bookkeeping
Debit Note Guide
Inventory Turnover Ratio

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The FIFO full form is – First In First Out. FIFO is a very simple and easy to understand inventory accounting system but cannot be used in all nature of businesses and can be used only in specific businesses that are perishable products or fresh produce and so on. At the end of the day, it is upon the business and the owner that needs to decide what method is best for the business, for accounting purposes and for tax purposes. 

What is FIFO and how is the method calculated? 

First In First Out – FIFO is an inventory management system that is used in businesses to keep a track of the inventory and for accounting. First in first one is when the goods that come in first in the inventory stock are then sold off first and are accounted for accordingly in the books of account for the business. Under the First In First Out, FIFO inventory accounting management system, the oldest products that are in the inventory need to be sold off first and the same rules apply when they are being accounted for in the balance sheet and profit and loss statement. 

Because First In First Out, FIFO uses a method wherein the oldest products are sold off first, the prices that are reflected in the books of account and balance sheet are not the latest in value since they account for the earlier prices of goods and supplies. This can be beneficial to a company when the prices of goods are falling down and it can be a disadvantage when the prices of goods are increasing. We will address this in the latter part of the article. Based on the nature of your business, the credit period of goods, whether your goods and business is a cyclical or non-cyclical business you need to decide whether First In First Out, FIFO is the right inventory accounting management system for your business or no. 

What are the advantages of FIFO – First In First Out? 

First In First Out, FIFO is an easy-to-understand accounting system, which has quite a few benefits amongst the businesses and owners. While Last In First Out is also easy to understand, in India, most businesses either use the Weighted Average method or the First In First Out, FIFO method because of its ease and adaptability. Some of the benefits of First In First Out, FIFO method are: 

• This method is very easy to understand and can be adapted by any business easily, irrespective of the nature of their business. 
• The accounting system for First In First Out is very easy since it takes into accounts the prices of goods as and when they come and enter those in the balance sheet according to those prices. Due to this, the documentation and paperwork of this method are also easy to adapt. 
• Since older products are sold first, the latest products will always be in the inventory keeping in mind the latest products in the business which makes it trendy and up to date too. 
• Accounting is easy. Since the prices reflect their true value the job can be done by anybody and hence it is not necessary for a business to hire an expert or a Chartered Accountant for this job which saves on time and cost. 
• Accuracy not only in terms of the accounting and balance sheets but also in terms of keeping track of the stock of inventory that is sold and not sold. 

While First In First Out has major advantages attached to it, there are some disadvantages too. While this is not a hindrance, it is just something that should be considered while using the First In First Out inventory accounting system. 

• During the FIFO system, sometimes profit can be overstated since the olden prices of goods and services are taken into consideration. Due to this, during a period of falling prices, the older goods will be more costly, increasing the profits on the balance sheet. While this may seem like profits are increasing, it is just during an economic period and one needs to keep in mind that the profits will not sustain for a longer period of time. 

First In First Out, FIFO Accounting Inventory Example

While we have covered the theory of First In First Out, FIFO the best way to understand this system is via an example and understanding it with a few numbers. 

Sirocco Goods and Stationery Shop is using the First In First Out, FIFO method for their stationery accounting inventory practices. They bought branded pens worth INR 100 per pen for a quantity of 1000 and branded colour paints worth INR 200 for a quantity of 100. This is what the transactions look like 

1000 Branded Pen = INR 100 x 1000 = INR 1,00,000
100 Color Paints = INR 200 x 100 = INR 20,000

In the middle of the month, they added 500 branded pens at INR 150 and 50 colour paints at INR 250. 

500 Branded Pen = INR 150 x 500 = INR 75,000
50 Color Paints = INR 250 x 50 = INR 12,500

By the end of the month, they sold 1200 branded pens and 120 colour paints. But since they follow the First In First Out, FIFO method for inventory management, the 1000 branded pens will be at INR 100 and the remaining 200 will be at the later cost of goods at INR 150.
The same goes with the colour paints. The initial 100 will be at the first price of INR 200 and the remaining 20 will be at the later price of INR 250. This is what the accounting and calculations of this transaction will look like: 

1000 Branded Pen = INR 100 x 1000 = INR 1,00,000 [Old Stock]
200 Branded Pen = INR 150 x 200 = INR 30,000 [New Stock]

100 Colour Paints = INR 200 x 100 = INR 20,000 [Old Stock]
20 Color Paints = INR 250 x 20 = INR 5000 [New Stock]

Even though one could take and fill up the quantity with the newest product, since they are following the First In First Out system, the earlier inventory needs to be completely over for them to then switch onto the newer inventory. While the inventory may be the same, this has to be reflected in the prices and on the balance sheet or profit and loss statement. 

This is everything one needs to know about the First In First Out, FIFO method. 

FAQs about FIFO

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While using the Last In First Out system isn’t allowed in India due to a few accounting discrepancies which we will address in the latter part of the article, it is important to know the method of LIFO, how it is different from First In First Out, FIFO and weighted average. Having knowledge about all the inventory accounting practices is important as it keeps you more informed and educated and helps you make better decisions regarding your business and accounting systems. 

What is LIFO and how is the method calculated? 

Last In First Out is an inventory management system used in businesses to keep a check on the existing inventory, how the selling of goods has worked, and represent the figures on the balance sheet and profit and loss statement. Last In First Out is the full form of LIFO and it is very easy to follow and adapt in the business. However, sometimes following LIFO can have a misrepresentation of the final figures on the balance sheet and profit & loss statement, which is why this method isn’t widely used. 

The way Last In First Out, LIFO work is that the products that have come in the inventory the latest are the first ones to be sold off first and the prices are the latest prices of the newest inventory that reflect on the balance sheet and profit & loss. But due to the following Last In First Out, LIFO, many times the old stock remains unsold for months, leading to more inventory and dead stock. Also with times and trends changing if the earlier stock is not cleared and new stock is sold out first, a big sum of cash will be stuck in the old inventory. 

Another point to note is that during a period of rising prices, as the newer goods are sold first, the higher prices reflect on the balance sheet and profit & loss statement, which inflates the balance sheet and understates the profit. This isn’t a true representation of the actual inventory as there is the old inventory that is yet to be sold and currently is just lying around as dead stock. This is the reason why many companies do not wish to follow the Last In First Out inventory accounting practices and this is why it isn’t allowed in India too. However, it is still an accounting practice that does come with its own set of advantages and benefits that need to be spoken of. 

What are the advantages of the Last In First Out, LIFO method? 

While First In First Out, FIFO is more preferred as an inventory management system, Last In First Out, LIFO also comes with its own sets of advantages and pros that could benefit the business. Some of the advantages of Last In First Out, LIFO are: 

1. Updated Numbers: Since Last In First Out, LIFO sells the latest goods first, the prices are the latest prices that reflect on the balance sheet and profit & loss statement. This also reflects the latest balances of the business and the cash flow of the business. 
2. Latest Inventory: Since the goods and inventory sold are the latest products, the sellers tend to sell stuff that is completely in fashion and trend. This tends to increase the sales of the business and it also helps in gaining popularity for the business. 
3. Improvement in Cash Flow: Many times a business is stagnant as they cannot sell the old stock of inventory which is why there is no inflow and outflow of money. With Last In First Out, LIFO and following this inventory accounting practice, the latest goods are put on display first and this leads to a movement in cash flow, ensuring goods are rolled in and out quicker than expected. Due to this, there is an improvement in the cash flow because of following the Last In First Out system. 
4. Tax Benefits: One of the biggest advantages of the Last In First Out, LIFO method is the tax benefits businesses and enterprises receive because of the selling of inventory. During the periods of rising prices and thus in turn of a period of inflation higher prices are paid for the goods and stock which in turn is compensated by higher revenues, which leads to a lower net income and hence the tax paid is also lower. Due to lower net income, and lower tax paid, the cash in the business is higher and hence it also helps improve the cash flow. The biggest reason a company may use Last In First Out is the tax advantage it has compared to the First In First Out method. 

Disadvantages of Last In First Out 

While Last In First Out may seem like a great option to follow for the inventory accounting methods, there are quite a few disadvantages that come along with it. Due to the disadvantages being more than the advantages, many countries globally have decided not to use the Last In First Out system for better accounting practices. India is one such country that does not allow the Last In First Out, LIFO method for inventory accounting practices. 

Some of the disadvantages of Last In First Out, LIFO are:

1. Reduced earrings and Net Income: While lower net income helps in tax benefits and in turn improves the cash flow, the overall profit of the company reduces during periods of rising prices and inflationary times. Therefore, many companies feel that even if lower taxes are paid, the idea of lower net income is looked at negatively and isn’t a very good sign. 
2. LIFO Inventory Liquidation: One of the biggest disadvantages of the Last In First Out, LIFO method is the inventory liquidation of the previous stock. Since the newer stock is sold first, the previous stock is just lying around which is very difficult to sell off as trends and fashion keep changing. This leads to tons of dead stock, leading to cash being stuck, reflecting a weak cash flow. 
3. Understatement of Inventory: Using the Last In First Out, LIFO system, the balance sheet figure is usually understated and this may look worse as a whole picture for the company. 

This is everything you need to know about Last In First Out, LIFO accounting methods. 

FAQs about LIFO

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An order management system is nothing but an electronic method to handle the lifecycle of an order. Moreover, it offers a one-stop store to see and manage the orders of all customers in one place. Besides, it records all the processes and information such as inventory management, order entry, after-sales service, and fulfillment. In addition, this system provides visibility to both the buyer and the business. With the help of this method, customers can check the arrival time of order and organizations can have near real-time insight into inventories. This further assists in automating the sales order information flow to every piece of the retail supply chain. In other words, an order management system automates and organizes all the things that are required by the consumers what they ordered in good condition and on time. 

Importance of Order Management System

The OMS full form is an order management system whose adoption is quite time-consuming and it looks like it takes a lot of effort. Hence, one might have a question in his or her mind like how order management would benefit me? Given below are the different reasons or importance of implementing an order management system in the organization.

Fewer Mistakes on Accomplishing Orders      

Everything seems normal when it comes to taking care of only a few orders a day. But, in case if your business kicks off, you would need to encounter a plethora of orders coming in each day so there would be more chances of occurring mistakes. Delivering faulty addresses, faulty orders, and shipping delays will affect your business reputation. An order management system smoothens the process and excludes the chances of human mistakes.

Track Understocking and Overstocking

Both understocking and overstocking can lead to a deadly hazard to your business. Understocking can tend to delayed customer delivery, which is not good for your brand value. On the other hand, overstocking can make you look like a duck sitting with a low amount of liquid cash. Order management assists in managing your seasonal sales on the basis of the history of customer purchases. This helps you to protect yourself from both understocking as well as overstocking. 

Saves Time

If you undertake an e-commerce business, you are a visionary and an entrepreneur as well. Most of your resources will take hours in mundane order accomplishment tasks without proper planning of handling your order management. It is better to hire a professional 3PL company to look after all of your fulfillment activities in order to avoid spending valuable resources on time-consuming activities. More time-consuming would result in costing a lot of bucks. Hence, the best alternative is to use an order management system that is an affordable and next-gen cheap automated order management solution. 

Components of Order Management

Nowadays, consumers have a mentality of buy-now and buy-fast. To provide a better buying experience to the customers, the OMS should have visibility into the capabilities and whole order lifecycle in four important areas namely order fulfillment, order aggregation, enterprise inventory visibility, and customer service. 

Order Fulfilment

There is an inventory allocation engine that optimizes back-end order orchestration and smoothens order fulfillment can assist in minimizing costs, decreasing shipping time, and offering customers options like pick up in store or ship from store. At the same time, the users of the business have the potential to review order history, automate workflows, and allow order fulfillment manually. 

Visibility of Enterprise Inventory

Here the OMS plays the role of the trusted source of inventory information across the enterprise. Inventory data lives in certain places many times which are as follows:

• Inventory on store shelves lives within the POS (point-of-sale system).

• Inventory within distribution centers lives within the WMS (warehouse management system).

• Supply chain inventory lives within the ERP (enterprise resource planning) system.

Customer Service

Even though it sounds simple, it is quite challenging to make changes to an existing order. This might affect tax calculations, pricing and promotion adjustments, inventory allocation, and payment processing. If the solution of an OMS does not have visibility into the whole order life cycle, there is not at all a way that it can bring changes to existing orders.

Order Aggregation

It is crucial to have a single view of order details just as it is imperative to have a single view of inventory. The OMS should aggregate these orders in one centralized center with orders being taken place across multiple channels. It thereby renders a real-time view of every customer purchase data across all channels. 

Basic Steps of Order Management Process

The key to order management constitutes a series of fluid processes, synced steps, and constant communication to form a fluid order-to-cash flow. The faster and smoother the flow, the more orders the organization can process, and the quicker the business can grow. Have a look at the basic steps of the order management process which are as follows:

Step 1: The process starts when a consumer places an order either over the phone, in-store or online with a customer services representative. The details of the customer like the volume of orders, order history, and payment preferences are then stored. At last, the order of the customer is sent to the warehouse.

Step 2: Then the checking of the inventory is carried out by a warehouse manager and continuous supply from vendors is recorded. If inventory runs out completely or runs low due to a big order, then an order will be placed to the department of purchasing. 

Step 3: Then the order is sent to the department of accounts where it is recorded either as accounts receivable or cash sales. An invoice is generated by logging in the sale in the ledger and sent to the client. At the same time, the payment is also recorded.

Step 4: A company’s own LTL or a third-party shipping service will then accomplish the order by delivering the goods to the customer.

FAQs on Order Management System

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It is very difficult for business owners like you to keep a check on inventory levels and manage your business simultaneously. The best way to manage your inventory is to – go digital. Digitisation will help you track stock levels, procure stock once the low-stock level has reached, adjust inventory, and much more. Read this article to understand the benefits of inventory management for businesses, especially for small businesses and how you can do it efficiently. 

If you are still managing your inventory using spreadsheets or other traditional methods, then your business might suffer in the long run. You can use the myBillBook app to digitise your inventory management. This easy-to-use app helps manage inventory digitally and tracks & alerts low-stock level, so you don’t ever miss out on your sales.

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What is Stock? 

Stock generally refers to the amount or quantity of finished product available with the business at a given moment, that they are ready to sell to their customers. For instance, if a company deals in organic tea, the number of finished tea packets that are ready to be sold on a particular day would be considered as the stock that the company has. 

What is Inventory? 

Inventory includes the finished goods with a company ready to be sold. However, it is not limited to that. Inventory refers to finished goods, raw materials, as well as work-in-progress items. Stock or finished goods are only a part of the inventory, which is a bigger umbrella term that includes all items that will be converted to finished goods as well. Items that support the manufacturing of finished goods but are not a part of the final product are also included in inventory. 

For instance, for the same organic tea company, the unprocessed tea leaves will be a part of the inventory in addition to the packets that are ready to be sold. 

Examples of stock and inventory

Let’s take a look at the following examples to better understand the difference between stock and inventory. 

For a tyre company, tyres ready for sale will be stock (finished goods to be sold) but the raw materials like rubber, chemicals, and the wire will be inventory in addition to the tyres (both work-in-progress and finished goods) which will also be a part of the inventory. 

Let us take another example. For a cookie manufacturing company, the raw materials (flour, chocolate, oil, essence, etc.), the work-in-progress (cookies that are in the oven, cookies that are waiting to be cooled off, cookie batter getting prepared, etc.), the items used in the preparation (butter paper) and the finished goods(cookie packets) will all be a part of the inventory while the finished cookie packers ready to be sold will be the stock.

Difference between stock and inventory for accounting

In layman’s terms, inventory and stock are often used interchangeably. However, that is technically incorrect. For anyone studying the company, the difference between stock and inventory can make a lot of difference. Stock is generally a subset of inventory and all stock is inventory but all inventory may not be stock. Any confusion in the usage of these two terms can cause many negative effects on the financial health of the company, as reflected through its financial reports. 

Here is how the difference between stock and inventory can impact the books of accounts and reflect incorrect information: 

• Inventory is calculated for accounting purposes while stock is calculated in the context of business purposes to restock and ascertain how much production is needed. 
• Inventory is measured using Last-in-last-out (LIFO), First-in-first-out (FIFO) and the average cost method. Stock, however, is measured at its market value or acquisition cost, whichever is less. 
• Stock is measured on a more frequent basis as per the needs of the business. Inventory, on the other hand, is measured less frequently, like quarterly or yearly, mostly for accounting purposes. Stock can even be measured daily to keep up with the market demand.
• Stock is directly related to revenue. The more stock a company sells, the more revenue it earns. Inventory is not directly related to revenue but it is used to determine the cost price and selling price of the items. 

How does myBillBook help in inventory management? 

myBillBook is multipurpose online software that can take care of your accounting, billing, invoicing, inventory management, and tax filing needs. It helps you manage your inventory in two ways: 

Barcode scanner: You can use a barcode scanner to generate invoices and also instantly update your inventory. Using a scanner updates the inventory instantly and also reduces the transaction time, making the process more efficient. 

Organise complete inventory: You can manage your entire inventory on myBillBook by uploading the entire list after choosing from a list of more than one lakh items.  You can link all your accounting applications to myBillBook and manage your inventory in one place. 

In addition to this, you also get alerts from myBillBook when it is time to restock your inventory. You can edit and update stock details on the go as well. 

Why should you use myBillBook for inventory management?

You should use myBillBook because:

It is free of cost: myBillBook software is free to use. Most of the products like billing software, accounting software, invoice generator, etc are free to use. Some premium products are chargeable at standard prices. With myBillBook you can maintain your inventory online for free. 

It generates reports: You can instantly get plenty of business reports to analyse your stock and inventory. Manage your inventory on the go with the help of stock summary, sales summary, stock detail report, and many other inventory reports from myBillBook. 

It offers a wide range of other services: myBillBook has a plethora of products that make your accounting and billing functions easy and faster. You can also use the invoice generated using the myBillBook invoicing software to file taxes as it is compliant with the GST norms. 

You can constantly monitor your inventory: You do not need to wait for the quarter-end results to understand your inventory situation. Regular reports and instant updating can help you keep a constant check and place new orders in time. 

It optimizes your time and efforts: Using myBillBook software and barcode scanners to complete transactions and generate customised invoices, you can reduce the time taken to complete a transaction and improve the overall time efficiency of your business. 

It is a smart option: Overall, myBillBook inventory management is a smart and advanced way to manage your inventory and keep up with the current technology being used by multiple small and medium businesses today. 

Inventory Turnover Ratio

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Inventory control incorporates many functions such as purchasing, shipping and receiving, trucking and warehousing, storage and other functions. In other words, inventory control is responsible for the flow of materials between multiple points. There are five distinct functions of inventory control: purchasing, shipping, receiving, warehousing and storage, and turnover.

Inventory control, or stock control, can be applied to almost any product and its multiple stages in the supply chain. Inventory control is a term used for managing the inventory of firms in all industries; it may refer to managing either internal inventory or suppliers’ inventories, or both.

If you are managing a warehouse, or know someone who is, then you know just how important inventory management is. It isn’t limited to large companies but also can be applied to businesses of any size. One point is clear, however: Inventory control is an effective and cost-efficient way to operate.

Understanding inventory control can be a challenge. Some may know the basics of inventory management, but many do not. The basic concept of inventory control is understanding your organization’s inventory levels so that you can maximize its use. You want to make sure that you have enough, but not too much, of what you need at any given time. This will help organisations smoothen sales and production while protecting the company from unnecessary returns or breaks in production.

To maximize your use of inventory, you need to eliminate or reduce these problems. The simplest way to do this is by maintaining continuous monitoring of your inventory levels and using statistical analysis on the data gathered. It is important to recognize that interruptions in the supply chain can reduce a company’s ability to meet customer demand.

The steps involved in Inventory Control Management are:

1)      Deciding the minimum level:

While inventory control is always best retained at the level of production, at times a decision has to be made based on certain parameters. The decision is often about deciding the levels of inventory. It is a difficult job, but it is not impossible and considering some important aspects can make it much easier.

The appropriate level of inventory is a question that is always asked by manufacturing companies. Inventory management is the art of handling the materials in the right manner and there are several factors that should be considered when planning to draw an inventory level.

2)      Deciding the reorder level:

In the context of manufacturing and supply chain management, reorder point refers to the level of inventory that triggers a new order. When you have to decide as to when you will be re-stocking the raw materials which will be used in the production of the final product. If the restocking time passes beyond the committed time of the finished product to the customer, then you will not be able to deliver a complete product to the customer.

3)      Setting inventory control regulations in place:

There are various operations that need to be followed for making efficient inventory control and is based on the type of business. The various techniques include perpetual, periodic, variable order quantity, etc.

Different types of Inventory Control Solutions:

1)      ABC Analysis

Inventories can be classified on the basis of value and sales frequency, in which A represents the highest value and B most frequent consumption and C category represents those stocks that are not widely consumed.

The ABC Analysis is a pricing tool that helps to monitor the performance of inventory by categorizing them based on their relative monetary value (A), sales frequency (B) and consumption rate (C). The idea is to come up with a system that would help determine where to spend money and more.

2)      Just In Time Analysis

Just In Time analysis method asserts that the production pattern has an effect on the inventory levels. Under this method, you will have an inventory level that is equal to the production requirement and helps you get rid of the required space needed for storage. This is done by making the order just-in-time (JIT) so as to get the materials when needed.

 While planning your scheduling, always remember that demand fluctuates from time to time for many reasons and thus you need to keep sufficient inventory for most likely, but expensive situations and ensure that there are no unplanned lead times if you have designed stocks to cover them.

3)      Economic Order Quantity (EOQ)

Economic order quantity or EOQ is a method of inventory ordering which helps you manage your inventory well. It is applicable to inventories of all kinds and the objective remains the same, the only difference is that in some inventories it will be used along with other inventory methods to solve the problem.

4)      FSN (Fast, Slow, and Non-moving)

The inventory of fast-moving commodity is placed first, followed by the inventory of slow-moving commodity and then the non-moving. They are placed in this order as these items sell faster and they can be replaced soon than the other. Hence, they are more important for safety purpose.

Tips that could help your Business with Inventory Control Management:

1) Be clear and concise about the labelling and store information on where goods are stored accordingly. Using the ABC method can help a lot in this process.

2) Listing the product information and tracking its origin, cost and function is great but where do you store it? There are several places you can store this information to make sure it is available at any time. If you have an e-commerce website, the records will be stored in your database.

3) There are many reasons for conducting a physical inventory count in your business. Inventory audits can’t be overlooked. No matter what you sell, you absolutely need to have an accurate inventory count of your business. From SKU-level to FIFO to LIFO, there are different ways these counts can be done.

4) Maybe you’ve heard the 80/20 Rule before. It’s essentially a rule that states that 80% of your profits are made from 20% of your inventory, or by using 20% of your resources to bring in 80% of your profits.

Advantages of Inventory Control Management:

Inventory control involves the analysis of inventory transactions and their integration with production & purchasing. It helps in planning and monitoring material requirements in order to maintain an optimum level of inventories. This ensures a smooth flow of material throughout the operation. Inventory Control is essential for maintaining the lowest cost, highest quality, and continuous operation of a firm.

Inventory Control is a managerial function that means maintaining an optimum level of inventories. One of the purposes of inventory control is to diminish the losses caused by overproduction, underproduction and obsolescence. In short in a nutshell, it can be stated that inventory control is a system for measuring, comparing, disposing, and anticipating materials that are really needed.

One of the most important aspects of a business is its inventory. It’s money that you paid upfront for inventory and you will only make money when sold. If you do not have bills to pay and inventories to manage, then you are losing out on a lot of profits. You won’t be able to focus on your core business because if you do then you will be out of stock.

If you are a business looking to gain some insights on inventory control solutions, contact us and one of our experts would reach you to help you resolve your business’s queries.

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