Unsold merchandise, or stock is a financial asset to a business, and unfortunately it is not a very liquid asset. Many business owners and managers wrongly assume there is no cost to holding excess stock, misplacing stock, or hoarding stock so long as the business remains profitable. There is however a steep cost to having too much stock, and this is why many managers seek to end the practice of overstocking. The cost of overstocking is not just limited to the obvious costs of holding and storing stock. Depending on the type of inventory the company may need to pay extra for refrigeration and heating; the useful life of many products also shrinks as they age (think groceries).
However, none of these factors is driving the cost of excess stock. The true cost of excess stock is the opportunity cost of the money used to buy the excess stock. In the case of larger businesses this means opening new branches on a line of credit from the bank instead of using cash on hand. Overall overstock situations lead to extra borrowing and the loss of income from the short-term cash transactions most businesses execute. This makes it critical for both large and small businesses to manage their stock. They need to know where it is, what it is worth, and how much inventory is on hand at all times, and if necessary take corrective actions to shrink oversupply. In the grocery business when they have an overstock in a product category, they generally have a sale. For the grocery industry in particular, correcting overstock is important, as the inventory has a very finite useful life.
One of the easiest tried and true ways to keep track of stock is to serialize it. This can be done cheaply and effectively with laser markings. These markings denote the lot number, and unit number of all of the stock a company has on hand, and allow it to be tracked, counted and reconciled against computer records.
There are many ways to automate the inventory management system. Computer programs and enterprise software are designed to allow companies to fully track and manage their inventory. It allows them to keep track of their total inventory throughout their business, deal with overstock situations when they occur, and forecast future stocking needs. An ERP system can also assist a company when it comes time to audit their inventory on hand. The systems counts can be compared to the laser marked serial numbers on inventory products and pallets in the warehouse to ensure the system is up to date.
For a large business forecasting demand is an important aspect of stock management. It means tracking trends, sales growth, and changes of individual products. Comparing these to the audit records will allow the company to adjust their purchases up or down to avoid an overstock or a sell out situation.
Just In Time Inventory Arrival
Using the above forecasts, the ERP software, and the laser marked inventory it is then possible to plan inventory arrival at the warehouse so that new purchases are made just as the warehouse is about to run out. This will allow the new product to arrive at the distribution channels just as they are about to stock out. In industry this practice is called creating and implementing a just-in-time inventory system.
To successfully implement just-in-time inventory, a company must have a solid logistics foundation. Any hiccup will mean some part of the business will run out of a product it needs to sell in order to generate revenue or operate a plant.