How Managing Inventory Thoroughly Can Increase Cash Flow

retail merchandising

Efficient inventory management may seem like a daunting task. Having the correct products in stock, ensuring inventory levels are correct and having a strategy for what to do with those items that are not selling, or for those lines that are new to store, are all usual concerns.

Managing inventory is as important as managing a business bank account and should be dealt with the same level of care and attention.

Maintaining a high level of scrutiny towards inventory will save money, time and energy. It enables decision makers to see which products are selling, which require re-ordering and which products are not shifting. An efficiently managed inventory control system is guaranteed to have a positive impact on cash flow as meeting customer demand for fast-moving inventory will not be an issue, and money will be saved by not ordering inventory that is not needed, enabling one to study the reasons why certain items are not selling as well.

Obviously, the number of days inventory can be held for before putting it on sale can vary considerably, depending on the business. The hospitality industry would hold food for probably no more than two to three days, but the retail industry selling clothing might hold stock for much longer.

Here is a simple equation for evaluating the number of days worth of remaining stock:

For Example

Understanding inventory data will provide valuable information to interpret specific patterns such as seasonal trends, good/bad locations for products and peak trading times. This information will help to plan ahead to ensure inventory levels are always where they need to be, limiting excess inventory and preventing running short on good sellers.