Inventory management is an essential element to ensure the sustainability of a company. Indeed, inventory management can directly impact cash flow. How to effectively manage the stocks of a company?
The stakes of inventory management
First of all, it is important to know that inventories are similar to all the goods involved in the operating cycle of a business, whether they are to be consumed, sold as is or intended for production. Inventories include merchandise, raw materials, finished products and packaging. Managing a company’s inventories makes it possible to satisfy future needs and also allows for flexibility. It should be noted that inventories represent both an expense and a capital asset. In the event of poor inventory management, a company can run the risk of overstocking or understocking. In any case, this would have a major impact on cash flow.
The different methods of inventory management
There are four methods of inventory management, corresponding to as many possible management methods. The reorder point method consists of defining a minimum stock level that, once reached, will trigger replenishment. This method is suitable for regular consumer products. The replenishment method consists of ordering a variable quantity of stock at a fixed date based on the analysis of your remaining stock. It is often used for expensive or perishable products. The calendar method, on the other hand, is often used in the context of a long-term contract with a supplier, where the date and quantity of stock remain fixed. It is suitable for products with constant consumption. And finally, the method of replenishment to order consists of placing orders exclusively on need and only after estimating stocks. This avoids unnecessary financial investments.
Optimize stock management
Once you have chosen the replenishment method best suited to your business, you will then need to ensure a good stock rotation as this is the guarantee of good inventory management. If the stocks do not turn over, it will be up to the treasury to bear the expenses and the capital will be immobilized. To optimize inventory management, you will have to take into account that some products sell better than others. You should also take into account the products that sell the least. You will then be able to plan an increase or a reduction in inventory based on the products you sell. You will then have a better inventory turnover.