Importance of Inventory Management
Few are the businesses that don’t rely on inventory. Even if yours is a service, rather than product-oriented enterprise, the chances are you have some need to move items through a supply chain.
It might be spare parts, consumable items, or perhaps equipment, but if it’s something you need to store and transport, then it requires treating as inventory and managing accordingly. Of course, if your company is providing products, the need to manage inventory efficiently is paramount. Just as customers are something on which your business depends, so is inventory.
In the last section of this post, we looked at the importance of suppliers as a factor for business success. However, the way in which you deal with inventory once it passes from the suppliers’ hands to yours, will also make a huge difference in the fortunes of your business.
Why is inventory management so important? Primarily because it can dramatically affect working capital and potentially, cash flow too. If you want to reduce working capital within your business, you should certainly take the time to investigate inventory management and ask the following questions:
Is it possible to improve forecast accuracy to reduce the need for holding safety stock?
Can you find a way to reduce inventory holding costs?
Are you taking enough steps to prevent the costs of inventory obsolescence?
Are you achieving the shortest possible lead times from suppliers?
Can you speed up customer delivery lead times?
Are you losing money because of inventory shrinkage?
The answers to these and similar questions will help you to secure business success by improving your working capital situation. You should also find that improvements in these areas will support increased levels of customer service and make your business more profitable.