Understanding Inventory Management
What is our primary goal in inventory management? Decreasing the cost, of course! Inventory is typically broken into raw materials, work-in-progress, and finished goods. For our clients, we often also help calculate inventory holding costs. Depending on your business context, your inventory and inventory costs will be unique; however, inventory management is critical in your product’s cost structure.
There are a variety of techniques that can be implemented in managing your inventory. More often than not, the goal of these techniques is to free up cash flow and shorten your operating cycle.
- The ABC approach: A small inventory quantity may represent a large portion of inventory value.
- The Economic Order Quantity Model: helps establish the optimal inventory level for your specific business. With this model, it is essential to note inventory depletion, carrying costs, shortage costs, and all other inventory costs; however, you will be able to see how much you should have in safety stocks and determine to reorder points.
- Just-In-Time Inventory: a modern approach to controlling your inventory. Just as it sounds, the goal here is to minimize inventory to meet immediate needs and maximize turnover.
The Full Cycle CFO Difference
Why Choose Our Team For Managing Your Inventory?
Inventory management works alongside cost accounting and operating cycles. The game’s name is to produce as much as you can sell to make the most profit on it. Full Cycle CFO will show you inventory holding costs and aid in effective cost control of your operations.
We can help you make those decisions: “should I be producing more/less?” With us helping you run these analyses, it takes the guesswork out of it so you can make the most informed decision for your business. We can help you understand what items are your best sellers and what items to cut back on. With us helping you understand this demand, you can effectively make better buying decisions and improve your storage capacity and cash flow. We want to help you fit all the pieces together to keep your business successful and profitable.