Managing inventory is a crucial part of carrying on business operations and is also part of the tailored process. However, the frequency or kind of inventory management varies from company to company. Every type of business must try to eliminate human error from inventory management mechanisms. The partaking of human error in inventory management can lead to the misrepresentation of results. Therefore, it is pragmatic to have some application of software to manage the inventory efficiently. Most of the finance applications have a built-in feature of inventory management. They can easily be linked up with the application’s primary business. Regardless of which inventory management system the business deploys, below are some techniques that can help facilitate an accurate cash flow statement.
It is essential and vital for every inventory management to set up certain thresholds and parameters for each product line in which the company is dealing. Limits can have an upper ceiling, a floor, and a critical minimum level of product that needs monitoring at all times. This is the JIT (Just in Time) Inventory methodology. If the critical minimum is nearing, the application automatically sends a prompt indicating the inventory is below the bare minimum threshold.
Although before deciding which system or mechanism of inventory management to use, thorough research must be done and the threshold parameters set up. It will not only systemize the inventory management process but will effectively assist in decision-making instances. If the inventory management application is adequately interfaced with the vendor’s system, the application will directly talk with the other system and order automatically.
Adapting an effective inventory management system or mechanism swiftly is another way of improving inventory management. The business owner needs to understand which stock is a slow seller and which product is fast-moving. Keeping this aspect in mind, the owner needs to adapt and deplete the slow movers with the fast-moving consumer goods to troubleshoot and preemptively come up with the solution, even if it requires expanding the current storage of the warehouse facility.
Having a cordial relationship with the supplier is empirical. It is up to the supplier, which of its current buyers are in good books. In this way, the suppliers will be encouraged to solve the issues, work in tandem, and keep the supply organized, provided the payments are on time, and all financial obligations are fulfilled. Especially having a warm relationship with the supplier of the product has long-term and reaping benefits. Orders placed in bulk or minimum quantity can be easily negotiated. The secret to the relationship is effective communication. Always notify the supplier if the business will witness a sudden seasonal surge in sales so that the supplier can readjust the production cycle at its end. This communication will eventually help in gaining confidence in the supplier.
Reliance on one supplier may not be prudent for a large-scale corporation. Concentration is not a positive aspect in the eyes of management and financial institution. Therefore, it is imperative to have a mix of suppliers of the same product as part of a contingency plan. For instance, the main and perhaps the only supplier is hit by the price hike in raw materials and forced to shut down a business due to some unavoidable circumstances. It will hurt other associated businesses too. By having an array of suppliers, the business owner is at liberty to negotiate different terms of credit and prices with each one.
So when the business wants to plug the leaking hole in the revenue stream, it is just about time to take control of the inventory management and adapt to the conditions.
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