Stock Management

In today’s article we’ll talk about stock, not the ownership of shares of a corporation type of stock, but the goods on hand which is to be sold to customers.

The stock we’re referring to is inventory in accounting terms in short.

For any company the deals with stock, it is important to ensure proper management to avoid stock-outs as well to avoid obsoleteness.

Inventory management systems track the lifecycle of inventory as it comes and goes out of your business, when it comes in from suppliers, and as it goes out as sales.

As the person in charge of inventory, you should be able to have a handle on how much inventory the business at all time.

Disparate from an ERP system, an inventory management system focuses on one supply chain process, most inventory system often comes with the ability to integrate with other software systems, like the point of sale, channel management, and shipping this is to ensure you can build a personalized integration stack to the needs of your unique business.

Having a good working inventory management system a fundamental element if the going concern of the business is to be maintained.

Inventory management is only as powerful as the ways you use it, so let us look at some of the techniques that you can apply to ensure efficient inventory management in your business or company.

  1. a) Economic order quantity (EOQ) – is a formula for the ideal order quantity a company needs to purchase for its inventory with a set of variables like total costs of production, demand rate, and other factors. The overall goal of EOQ is to minimize related costs.
  2. b) Minimum order quantity (MOQ) – On the supplier side, this is the smallest amount of set stock a supplier is willing to sell. If retailers are unable to purchase the MOQ of a product, the supplier won’t sell it to you, this is important for the company to ensure that funds are available in time.
  3. c) Just-in-time inventory management (JIT) – this is an inventory management technique that arranges raw material orders from suppliers in direct connection with production schedules. JIT is a great way to reduce inventory costs as only the required amounts are ordered when needed.
  4. d) Safety stock inventory management – in this technique extra inventory is ordered beyond expected demand. This technique is used to prevent stock-outs typically caused by incorrect forecasting or unforeseen changes in customer demand.
  5. e) FIFO and LIFO – these are methods to determine the cost of inventory. FIFO, (First in, First Out), assumes the older inventory is sold first. FIFO is a great way to keep inventory fresh. LIFO, (Last-in, First-out), assumes the newer inventory is typically sold first. LIFO helps prevent inventory from going bad.
  6. f) Reorder Level Method – this is an inventory management technique that’s based on a business’s own purchase and sales cycles that varies on a per-product basis. A reorder point is usually higher than a safety stock number to factor in lead time.
  7. g) Demand forecasting – this should become a familiar inventory management technique to retailers. It is based on historical sales data to formulate an estimate of the expected forecast of customer demand. It’s basically an estimate of the goods and services a company expects customers to purchase in the future.

The above are just but a few of the inventory management techniques available.

You can leave some of the ones you know as well, on the comment box below, also hit the subscribe button to get our publication as soon as they are released.

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Mbugua & Associates.


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