Cash “lost” within a business that possesses an out of date stock is a huge issue for companies. This can stifle cash flow and the business’s growth and profitability. As a general rule of thumb for every inventory, products that remain unsold and unsold inventory should be kept in mind so that spending is not excessive. Let’s discuss four ways of inventory management a business can implement in order to maximize cash and profit potential, and in the process, improve efficiency in the business.

 ABC Analysis: Segmenting stock for greater effectiveness

A business uses ABC analysis as a technique to group stock on the basis of quantity and value, meaning greater value can be earned from unit sold. To minimize the cash drain on low value stocks, firms prefere to segment stock into three critical categories.

A Category:

Inventory that falls under this category possesses great value but has a low quantity. expensive items tend to sell less, hence it is crucial to rotate A-category stocks quickly in order to maximize profit.

B Guys:

Inventory possesses moderate value and falls under B category. Items in this Canto are balanced both in volume sold and their cost.

C Category:

Inventory with great quantity but low value accompany this category. Cheap items tend to sell more but in bulk.

Actionable tip:

To increase cash flow concentrate on expediting turnover in A-category products. Efficient management of B and C items will help reduce storage costs and excessive inventory.

 FSN Analysis:

Analyzing and volumizing fast, slow, and non-moving stock FSN will require your business to have stock which moves, as well as stock that stands still at varying intervals.

This analysis classifies inventory according to the rate at which it is moving through your business. This enables you to identify products that are capable of blocking cash flow and rectify them appropriately.

F Category (Fast Moving):

Selling units that bring in revenue and profits for the business, or items that are in high demand. These products are best in class, winners and are heavily relied upon for cash flow.

Category (Slow Moving):

Sells and takes time to place in overlooking or rarely looked at position of place. These products should be monitored in order not to stock too much and keep unnecessary capital caught.

N category (Non-Moving Stock):

Stocks that go unsold and eventually become obsolete, or dead stock items.

Actionable tip:

Spend more of your time implementing strategies for fluiding slow moving and non-moving stocks while focusing on F category inventories.

EOQ and ROL: Optimizing Stock Orders

Determining the amount of inventory a business should order is guided with two models EOQ and ROL. Economic order quantity relates to optimal quantity a business needs in order to minimize cost whereas return on investment level refers to the amount that can be gained back on already accumulated stock without wasting excess money. This can allow a company to eliminate overspending on relevant inventory.

Reorder Level:

The number of stock that needs to be purchased while bearing in mind the requirement and demand so that there is no deficiency of it.

Tip:

Ensure that your modus operandi is accurate by determining your EOQ and ROL to prevent entering the zone of over excess spending on orders.

Moving to the next point, Just-in-Time Inventry management system need to be optimized to ensure that there is little to no waste left over while using company resources. This is one of the best, efficient, and qualitative ways of managing stock that comes in handy for businesses that work with higher inventory.

Moreover, JIT works toward receiving stock when it is completely necessary to sell or produce something. As a result, there is no excess waste or costs that are accrued in storage.

For instance, businesses like Toyota are known to utilize JIT. This means materials are delivered precisely when they are needed for production. This approach saves on costs overhead and allows for greater efficiency.

Practical advice:

The implementation of JIT can be complex, but in the end, it saves on the holding costs. With proper foresight, JIT becomes easier to achieve with the use of modern technologies since they enhance precision and lessen operational blunders.

How to Remain Organized with your Inventory In 10 Steps

These steps will help you manage your stock in a proper and timely manner:

1. Implement Enterprise Resource Planning: Automate your inventory tracking with ERP software. This will allow integration with sales, finance, and procurement functions.

2. Maximize inventory Turnover: Avoiding overstocking by focusing your attention on the improvement of cash flow.

3. ABC and FSN Analysis: Your stock should be modified and assessed on a periodic basis to facilitate stock management practices.

4. Forecast demand: Analyze previous data along with the market trends to make an educated estimate about demand for the following quarters.

5. Automate processes: Reducing human bias with automation and technologies requires reducing inventory management errors with JIT or alternative approaches.

6. Track Inventory Detail: To minimize damages, waste, and expiry date losses, track those dates.

7. Differentiate between perishable and non-perishable items: non-perishable stocks can be stored for longer durations while perishable items, such as meat or dairy, have higher priority due to strict timelines associated with them.

Maintain adequate levels of top-selling stock- top selling items must always be on hand and readily available to consumers, but do not make the mistake of oversupplying.

Reserve stock for rainy days- a back up stock is to be kept for unforeseen disruptions like unforeseen improves or sudden increases in demand.

Utilize a cross-selling approach- slower selling items can be placed alongside more appealing options to ensure a higher purchase rate.

Implementing inventory changes through actions strategies

To strengthen your inventory management functions, consider this system:

8. Classify inventory: Divide your inventory in ABC FSN for better accuracy on high value, fast files which will ensure that you manage better cash flow for other items to encourage inventory turnover.

9. Track inventory revolving ratios: Measure the ratios for particular fast moving items consistently to track optimal cash flow.

10. Use technology: Invest in software that connects inventory control to other functions and automate as many processes as possible for replenishment.

Make inventory control systems task efficient by managing to ensure perishables are sold or discounted quickly before they spoil.

Conclusion:

Efficient cash flow is important for healthy business, and effective inventory management plays an important role in supporting this. Maximizing profits becomes very easy if these two techniques: just in time inventory and ABC analysis are applied. These techniques help in everyday business activities and contribute to the wider goal of sustainable development.

Categories: Working Capital Management