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How to Manage Inventory to Increase your Profits

September 2, 2014

How to Manage Inventory to Increase your Profits

Many businesses concentrate heavily on sales and marketing as the golden roads to increased profits, however, a well managed inventory is often overlooked as a powerful way to improve your business’ profitability. Purchase and production cost of inventory can greatly affect gross profit. If you have too much inventory on your shelves, you run the risk of obsolescence and getting stuck with products you can’t sell. Having too little inventory can cause delays in production when demand increases and can give your customers reason to shop elsewhere. Either situation will cost your business money.

To successfully manage inventory to increase your profits requires creating the delicate balance of knowing what to carry, what’s moving and what’s not, anticipating your future needs and acting wisely upon them. Here are several guidelines to help you better manage your inventory to increase profits:

  1. Analyze Demand and Trends – Examine historic sales, market conditions, and past trends to help better anticipate the ebbs and flows of inventory needs overtime. Products can then be ordered or manufactured to meet established surges and reductions in inventory demand. This analysis should also factor in manufacturing time, vendor fulfillment times and well as reliability.
  1. Gain Control Over Your Inventory – Create an inventory control system using real-time software and procedures to improve and maintain consistency and efficiency, which in turn will help reduce costs and improve profits. A unified system across all physical and virtual locations can help identify productivity problems and identify cost reduction possibilities.
  1. Focus on Productive Inventory ­– Identify the inventory that moves steadily and consistently to ensure that it stays productive. Productive inventory can teach you about what works and help you eliminate what doesn’t for slow-moving or dead inventory.

By closely analyzing historical trends, tracking current inventory, and anticipating future shifts, you can help streamline your inventory management and increase your profits. What techniques have you found helpful to better manage inventory and increase profits?

Filed Under: Bookkeeping, Small Business

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