A business that works perfectly is a business organized from A to Z. And optimized inventory management plays a key role in this organization. Perfectly controlled inventory Software for Saudi Arabia makes it possible to cope with sales peaks, especially during commercial operations. But in addition to saving you money, inventories can save you money: goodbye to goods that end up perishing and dead stocks!
What Is Inventory Management?
Inventory management consists of keeping track of the goods stored by your company and controlling their weight, dimensions, quantities and location. Stock is what you have available (goods and merchandise) for your customers.
The goal of inventory management is to minimize the cost of holding merchandise by helping you know when it’s time to restock products or repurchase your raw material to manufacture them.
As for inventory control, which closely resembles inventory management, it specifically refers to when you control your inventory, usually through effective management tools or methods.
Why Is Inventory Management Important?
Effective inventory management is essential to ensure that a business has sufficient merchandise to meet customer demand. If inventory management is not properly managed, the business can either lose money on potential sales that cannot be realized, or waste money by storing too much product unnecessarily.
Inventory Management Can Serve You In Several Other Ways:
1. Avoid Waste
If you sell products that have an expiration date (like food or beauty products, for example), you will run into difficulties if you fail to sell your merchandise on time.
2. Avoid Dead Stock
A dead stock can no longer be sold, but for reasons other than the expiry of the products. It could be that your products are out of fashion, not suitable for the coming seasons, or simply obsolete. By effectively managing your inventory, you can avoid this problem.
3. Save Storage Costs
Storage costs are variable costs, which means that they change according to the quantity of products stored. If you keep too many products in stock or fail to sell certain items, your storage costs will increase…
4. Improve Cash Flow
Proper inventory management not only saves you money, but also optimizes cash flow in a number of ways. As mentioned before, you’ve probably spent some money acquiring your stock, and you’re going to resell it for a profit. But, until you resell it, your stock costs you more money than it earns you.
That’s why it’s important to consider inventory as part of your cash flow management. Inventory affects both sales and expenses, since you rely on it to know how much product you can sell and need to order. This therefore significantly influences the amount of available cash. In short, good inventory management allows for better cash flow management.
A good inventory management system will allow you to know exactly the quantity of products you have and, based on sales, you will be able to make projections in order to know when you will have to reorder certain items. You will avoid losing sales and you will have enough cash available to better plan your future orders.
The Different Types of Stocks
Now that you know what inventory management is, let’s review the types of inventory you’ll be dealing with:
- Raw materials,
- Products in process (WIP),
- finished products,
- Maintenance, repair and operating (MRO) goods.
Raw Materials
Raw materials are materials or substances used at the start of the production or manufacture of goods. We think in particular of wood, metals, plastics or fabrics used in the creation of finished products. A business owner or manufacturer acquires these materials from one or more suppliers or producers.
You Can Divide Raw Materials Into Two Groups:
Direct materials, which are used in the final product. For example, the fabric you use to make clothes.
Indirect materials, which are used throughout production, but which are not included in the final product. Commodities are an asset on your company’s balance sheet.
Products in Progress
Work in progress products are unfinished products that can only be sold after processing by your company.
In a balance sheet, finished goods include all production costs: labor, machinery, raw materials, and other equipment. At this stage, its value is only that of the materials, time and labor invested.
Finished Products
Finished goods inventory is the number of in-stock products available to customers. Once a work in process is processed and finished, then it becomes part of the finished goods inventory.
Finished goods are subject to a markup, which means that the price at which they are sold is higher than what the items cost you.
Maintenance, Repair and Operating Products
Here we refer to the materials and various equipment used in the production process, but which are not, however, part of the final product.
- Here are some examples of maintenance, repair and operation products:
- Personal protective equipment like face masks, gloves and safety glasses,
- Cleaning supplies like sanitizers, brooms and buckets,
- Office supplies like notebooks, pens, and tape
- Technical equipment such as laptops, printers, scanners, etc.
- Laboratory equipment for any test and any research aimed at creating products,
- Repair tools.
Read more: online Inventory management software KSA
