The Inventory Factor: What’s Affecting Your Inventory?
Whether you are running a current business or looking to start up a new company, it is important that you have enough stock on hand to meet your consumer’s needs. However, investing all of your money in inventory drains your working capital and prevents that money being used elsewhere in the business. Accurate forecasts are vital when it comes to maintaining and replenishing inventories, and it is necessary for a business to take into account both the internal and external factors that affect their inventory flow.
One factor that affects a business is the cost of financing. If you are externally financing the cost of stocking your inventory, it pays to watch interest rates closely and plan purchases accordingly. Any tax rebates that are associated with your business inventory costs are internal factors that need to be considered. Similarly, any risks faced when purchasing inventory should also help shape your buying decisions. If you are financing your business by way of an instalment loan, you are required to make repayments regularly, regardless of your sales numbers. Whereas financing using an equity loan means you don’t have to make repayments until profits are made. Some of the other financial costs associated with inventory management are fairly straightforward and include aspects like storage and transportation, as well as product insurance and maintenance.
Product availability is another key factor, and is a necessary component of any production line. Having a reliable supplier that delivers what you want, when you want is an external influence that can be the difference between a sale made, and one lost to a competitor.
It is also essential to take into account some of the internal factors that affect your inventory management; you need to understand the lead times faced by your suppliers, and maintain stock levels accordingly. It may also prove worthwhile to find a backup supplier to use in case of unforeseen product demand or supplier shortages.
The type and cost of your product will be one of the main factors influencing your inventory management. If a business sells a product with a short shelf life, such as perishable goods, then this will require a different inventory management strategy than a fashion retailer. It is important to ensure that your particular style of stock management is right for your business.
Likewise, you need to ensure that when managing your stock you take into account the cost of your product. High-end goods should be secured appropriately with limited access, while some lower-end goods can simply be stored on the shelf. Some products may require a warehouse to be stored in and an onsite security guard – it varies from business to business.
These are a few of the main factors that ought to be taken into account when setting up or modifying an inventory management system. It’s important to have enough stock on hand to sell to your customers, but you don’t want to spend all of your capital on inventory. It’s about finding an equilibrium between the two that suits your company’s product and business model.