What Is an Inventory?
More than just controlling the amount of stock you have left in your stockroom, inventory management also involves the time necessary for replenishment of stock, asset management, carrying cost sheets of the inventory, forecasting, visibility, physical space for inventory, the return of faulty goods, valuation, and future price forecasting. But in the most basic sense, inventory is nothing more than keeping raw materials, parts and finished goods on-site or in warehouses. It is considered one of the most important aspects of your business which is responsible for generating cash and profit.
How to Create an Effective Inventory System?
Small businesses or physical and digital businesses need to have an organized inventory system to ensure that they don't encounter hiccups along the way and continue a smooth flow of all the business processes. Below, we have provided you with a short guide on how you can easily create an effective inventory system:
1. Establish Clear Location Names and Labels
Your goods and materials shouldn't just be stored 'somewhere', that somewhere needs to be specific and it should have a name. Establishing names of your locations and appropriately labeling on your inventory sheet will help ensure an efficient and convenient process when looking for the items that you need. This simple yet effective strategy will help you avoid disorganization and total chaos in your warehouse, stockroom or storage.
2. Provide Item Descriptions and Numbers
You should provide a clear and specific description for all your items to ensure your people can easily search them in your storage room and in reports. Pro tip: it is best to include a four-to-eight character number for each item for your product codes, UPC codes, or SKU; it is not necessary to use numbers or letters that relate to the item, it is merely for identification and not for description. And when writing unique descriptions, you should also start with a noun, then, use adjectives in descending order of importance.
3. Decide on Standard Units of Measure
Having standard and consistent units of measure helps ensure that you can make your stock levels, shipping quantities, and ordering quantities easier to comprehend for you, your team, and even consumers. The units of measurement depend on the type of items or goods you have, but the most commonly used ones are pieces, each, pounds, kilograms, bags, foot, gallons, and so on.
Best practice guidelines suggest that you keep all of your unit abbreviations in lowercase; incorporate both the singular and plural forms of the unit of measure into one term; avoid using different units with the same meaning, and use the units used when you purchase or stock an item for your standard units of measure.
4. Create Policies and Train People
Establishing policies that your employees can refer to when receiving items, taking stocks, reserving for future use, looking for who is responsible for handling certain transactions, and so on will help you achieve a smooth flow for this aspect of your business process. When creating your policies, you should be direct and specific. And regardless if you only have two people for these tasks, you should educate and train them for the procedures you include to avoid misinformation and confusion.
What are the Different Types of Inventory?
Generally, inventory types can be grouped into 8 classifications:
- Raw materials.
- Finished goods.
- Transit inventory.
- Buffer inventory.
- Anticipation inventory.
- Decoupling inventory.
- Cycle inventory.
Distinguish between Stock and Inventory?
While stock deals with products that are sold as part of the business’s daily operation, inventory includes sale products and the goods and materials used to produce them. For example, cars, car parts and accessories are sold during normal business practices, but the machines that run diagnostic tests on cars or the car lot itself are not. Inventory takes into account all of the assets a business uses to produce the goods it sells and determines the sale price for the stock. The stock determines the amount of revenue a business generates. The more stock that is sold, the higher the revenues.
What does Inventory refer to in Accounting?
Inventory accounting is the body of accounting that deals with valuing and accounting for changes in inventoried assets. A company's inventory typically involves goods in three stages of production: raw goods, in-progress goods, and finished goods that are ready for sale.
Define Inventory Management?
Inventory management is a component of supply chain management that involves supervising non-capitalized assets, or inventory, and stock items. Specifically, “inventory management supervises the flow of goods from manufacturers to warehouses and from these facilities to point of sale.”
How to Keep Track of My Inventory?
Here are some of the techniques that many small businesses use to manage inventory:
- Fine-tune your forecasting.
- Use the FIFO approach (first in, first out).
- Identify low-turn stock.
- Audit your stock.
- Use cloud-based inventory management software.
- Track your stock levels at all times.
- Reduce equipment repair times.