Inventory management helps companies identify which and how much stock to order at what time. It tracks inventory from the time of purchase to the sale of the item. The practice identifies and responds to trends to ensure there’s always enough stock to fulfill customer wants and needs and also alert retailers risk of shortage. Once sold, inventory becomes revenue.
Before it sells, inventory (although reported as an asset on the balance sheet) ties up cash. Therefore, too much stock costs money and reduces cash flow. One measurement of good inventory management is inventory turnover. An accounting measurement, inventory turnover reflects how often stock is sold in a period. A business does not want more stock than sales. Poor inventory turnover can lead to deadstock, or unsold stock.
Why Is Inventory Management Important?
Inventory management is vital to a company’s health because it helps make sure there is rarely too much or too little stock on hand, limiting the risk of stockouts and inaccurate records.
Benefits of Inventory Management
The two main benefits of inventory management are that it ensures you’re able to fulfill incoming or open orders and raises profits.
Understanding stock trends means you see how much of and where you have something in stock so you’re better able to use the stock you have. This also allows you to keep less stock at each location (store, warehouse), as you’re able to pull from anywhere to fulfill orders — all of this decreases costs tied up in inventory and decreases the amount of stock that goes unsold before it’s obsolete.
Improves Cash Flow
With proper inventory management, you spend money on inventory that sells, so cash is always moving through the business.
Developing loyal customers is ensuring they receive the items they want and need without waiting.
Changing Customer Demand
Getting Accurate Stock Details
Inventory Management Challenges
The primary challenges of inventory management are having too much inventory and not being able to sell it, not having enough inventory to fulfill orders, and not understanding what items you have in inventory and where they’re located.
If you don’t have accurate stock details,there’s no way to know when to refill stock or which stock moves well.
Outdated or manual processes can make work error-prone and slow down operations.
Changing Customer Demand
Customer tastes and needs change constantly. If your system can’t track trends, how will you know when their preferences change and why?
Accounting integrations are powerful, drastically reducing inaccuracies in data around revenue. Accurate revenue data is paramount, as it impacts the way business owners and accountants make important decisions. Leave the data flow to automated processes, which will guarantee data sharpness, and free you to focus on what you do best: selling.
Founded in 1988, M.X. Data has over 30 years of industry expertise and experience providing comprehensive services to internationally renowned luxury goods retailers and major brands in the fashion industry.