There is no doubt that inventory management has an effect on the profitability of a business. In fact, it influences a number of factors. The first factor is overall organization of the inventory, meaning that the inventory items are stored in a clean area, where it is easy to distinguish items from one another. The second factor is a high turnover of products. You don’t want stock gathering dust on the shelves; the most efficient businesses have a high turnover. Another factor that affects profitability is overheads. By reducing overheads as much as possible, profitability of your business will increase accordingly. Let’s take a look at these three factors more closely:
- Well-Organized Inventory — Having a disorganized storage facility for products will only make your business less efficient. It will lead to a struggle to keep track of the quantity of each item in your inventory. Not being aware of the quantity of each item can cause items to go out-of-stock and prevent you from making more potential sales. A well-organized inventory is easier to maintain and helps you to keep track of item quantities. Inventory analysis and planning applications can help keep track of item quantities, but having a well-organized inventory is up to the business owner and their staff.
- High Turnover ofÂ Products — The products in your inventory should sell. They should have a high turnover for your business profitability to increase. By having control of your inventory, you will be able to see which products are the “best-sellers”. This way you can optimize the products in your inventory. Instead of trawling through spreadsheet after spreadsheet of sales data, inventory analysis and planning applications can speed up this process.
- Reduce Overheads — You don’t need to be a genius to figure out that if you reduce your overheads, your profitability will increase. Hidden overheads are often tied up in inventory. One large overhead surrounding inventory management is manual labor. This could be anything from counting stock, to organizing and transporting. By making your inventory management more efficient, some of these overheads can be reduced. Counting stock can be eliminated with the help of a reliable inventory management software, while organizing and transporting can be made more efficient by only having the amount of stock you need when you need it.