Dealing With Inventory: A Few Costs To Keep In Mind

What is inventory management?

Inventory management is the act of keeping track of a company`s  stocked goods and monitoring their weight, dimensions, amounts, and locations. The entire focus of inventory management is to minimize the cost of holding inventory by helping business owners or buy more material to manufacture them.

Let’s have a quick glance at how inventory Management costs you money:

A. Avoiding Spoilage

Every product has an expiry date, there’s very little chance that if we don’t sell it on time the product might get affected. Inventory Management has a feature to avoid unnecessary spoilage.

B. Avoiding Dead Stock:

The stock that can no longer be sold is Dead Stock. But the reason that deadstock cannot be sold is not necessarily because it expired, it might have gone out of season, out of the trend or style or otherwise has become irrelevant.

C. Saving Storage Costs:

The process of warehousing is often a variable cost. Its functioning depends completely on how much we  are storing. When we attempt to store too much at one go, it becomes very difficult to sell, and the storage costs automatically goes up.

There are advantages of having a good inventory management system. Inventory management system improves the cash flow in other ways. Inventory is a product that is paid with cash and sells it for cash, but while it is installed in a warehouse it’s not a cash transaction. Inventory management directly affects sales, by dictation how much you can sell and expenses by dictating what you have to buy.

Better Inventory Management leads to better cash flow management.  Also, when you have sold inventory management software the company is aware how much product it has. This helps to ensure that you don’t lose sales (critical for cash flow), but it also lets you plan ahead for buying more.

 Essential Inventory Management Technique

For any business management system, inventory management is highly customizable. However, it is important to remove human error from inventory management as much as possible by utilising the benefits of inventory management system.

Stated below are 8 techniques that will help you to build  and improve your inventory management and cash flow.


You can make your inventory management much easier by setting “ par level” for each of the products of your company. Par levels are the minimum amount of product that must be on your hands. When your stock goes below the inventory level, that is when you know that there is a requirement for ordering more stock.

In most situations, we usually order the minimum quantity that we will get back above “par”. Par levels differ by products and are based on how quickly the product sells and how long it takes to get in stock.

Although setting a  product requires some research as well as decision making, and having them set from the beginning will systemize the process of ordering. It makes the process of decision making easier.

To confirm that the stock we select at a par level keeps making sense it is important that we keep checking on it as a condition over time.


One of the most important principles of inventory management is First-In-First-Out. It means that your oldest stock gets sold first and not your newest stock.

This is especially important for perishable products so that you don’t end up with unsellable spoilage. The idea or concept to practice FIFO goes best for non-perishable products. If there are boxes always kept at the back, they will very easily get worned out. We have to consider that  packaging design and features often change over time. Of Course, no company ever wants to end up with a product that they cannot sell.

To manage a FIFO system, an organized warehouse is needed. That typically means, adding new products from behind, or just making sure that old products are at the forefront. Staying in touch with the warehouse company is essential so that  you know the situation of your stock.


Managing relationships is part and parcel of a successful inventory management system. The ability to adapt quickly is an asset. Weather it is about returning a slow selling product, or restocking a faster seller very quickly, troubleshoot manufacturing issues, or temporarily expand the storage space it is very essential that you  have strong relation nad communication with your supplier.

Having a good relationship with your product supplier goes a long way. Minimum order quantities are often negotiable, and there shouldn’t be any space for fear while asking for a lower minimum.

A healthy relationship with the supplier helps in a smooth communication of stock and an organized inventory management. Let your supplier know when you’re expecting an increase in sales so that they can adjust production.


Regur auditing and reconciliation is very important. Even though you will be depending upon facts and reports from your warehouse to know how much product you have. However there are other methods to do this as well:

1.Physical Inventory : Physical inventory is a practice of counting all your inventory at once.

2. Spot Checking: Sport checking refers to choosing a product, counting it and comparing it and comparing the number to what it’s supposed to be. It is not done  according to any schedule and is supplemental to inventory.

3. Cycle Counting : Cycle counting refers to spreading reconciliation through the year, rather than a full content at the year-end. In this case the higher- value items are counted more frequently.


Effective inventory management helps you to keep reduced cost. Keeps your business profitable, analyses sales patterns and predicts future sales and prepares the business for the unexpected. With proper inventory management in place, a business has better chance of profiting and growing successfully.

It’s time that you take control of your inventory management and stop losing money.

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