When your business’s inventory is effectively managed, you can be confident that you know where your stock stands. You know what is on hand, where it is, and what you need more of.
How It Works
Inventory management involves overseeing the flow of units into and out of your business’s inventory. This includes tracking how long it takes for items to be delivered, tracking how long it takes items to leave your inventory, and tracking the movement of items through your operational process.
Knowing this information places the power to run your business in your hands, as you are able to control costs associated with inventory, eliminate inefficiencies that cost you money, satisfy customers, generate regular cash flow, and get things right at tax time.
Benefits Of Managing Your Inventory
Accurate inventory management creates opportunities to improve your efficiency and profits. It does this by allowing you to:
• Implement efficient re-ordering, because you know when to place an order, and know how many units to order so production runs smoothly and inventory is neither too high or too low
• Track work in progress
• Provide accurate information for customer service
• Avoid problems by identifying issues before they get out of hand
• Conduct efficient stocktake
• Avoid missed sales due to being out-of-stock
• Improve the accuracy of accounting and profit/loss reporting so you can create accurate records for tax and avoid underpaying and attracting fines
• Control costs by managing the total value of goods and your tax burden
• Minimise production interruptions by calculating appropriate buffer stock/equipment for emergency situations
• Avoid wasting cash and space by overstocking items
If you would like to take control of your business’s inventory to improve profits and efficiency, EzyAccounts can help. Give us a call today on 1300 313 397.
Types of Inventory Management
There are three main types of inventory management that are commonly used in Australia. These are:
• First in, first out (FIFO)
• Weighted average method
• Specific identification method
The FIFO inventory method assumes that items bought first are also used or sold first, so that the items in stock are always the newest ones. As this is the case with inventories for most companies, this is the most common inventory management system.
The weighted average method rolls the cost of any new inventory into the cost of any existing inventory to create a weighted average cost, which is adjusted each time more inventory is purchased. This is often used for businesses where the inventory costs fluctuate, such as with vegetables and fruit.
The specific identification method involves tracking and costing individual inventory items in and out of stock. This is a more labour intensive method, but is useful when inventory on hand is minimal. This can only be done if individual items can be clearly identified, as with serial numbers, etc.
Manage Your Inventory
An EzyAccounts bookkeeper can help you identify the best inventory management method for your business. Talk to us today – call 1300 313 397.
Do you need a bookkeeper who can take care of day-to-day bookkeeping tasks, or other tasks such as designing and measuring KPIs, budgeting and variance analysis, payroll and cash flow forecasting? EzyAccounts local bookkeepers can help. Talk to us today to learn more.