Good inventory management is a key aspect of managing cash flow. Too much inventory depletes your business’s resources, tying up cash in the form of goods, as well as insurance, storage and interest charges on those goods. On the other hand, too little inventory can result in lost sales, delays and customer aggravation – free gifts to your competitors.
Inventory management is a juggling act. While you need to keep an adequate quantity and variety of goods on hand to meet customer demand in a timely manner, you don’t want to invest too much in goods that don’t sell well or may become obsolete, spoiled or irrelevant.
Many businesses strive to operate on a just-in-time (JIT) basis, holding stock for a minimal amount of time before moving it, selling it or using it. The keys to effective JIT inventory management are to pinpoint the rate at which each item in your shop moves and to maintain optimum stock levels for each item. To optimize stock levels, consider:
• Anticipated stock turns for each item
• Availability of raw materials and components to manufacture or assemble goods
• Time necessary for delivery by suppliers
• Shelf life for each item
To reduce excess inventory, you may need to sell off outdated or slow-moving merchandise. Remember that stock sitting on your shelves for long periods of time ties up money that is not working for you.