2 min read
25 May 2021

Inventory management has a direct bearing on the sales and the growth of the company. Per tradingeconomics.com and MOSPI, the stocks of goods held by firms in India increased by Rs. 447.66 billion in the fourth quarter of 2021. Changes in inventories in India averaged Rs. 423.26 billion from 2004 until 2021. It is a vital indicator of the overall performance of the Indian economy and its management is all the more critical.

Inventory of a company includes the raw materials, work-in-process products and the finished goods. Companies have made increasing use of inventory management software and Internet of Things (IoT) to manage inventory and expand sales. These help to reduce operational costs, even while keeping the stocks well-maintained for the right products and at the right time. While overstocking can trap your cash flow, insufficient stock can prevent servicing of your sales orders.

IoT and inventory management software and hardware involve costs to the company which can be managed with a business loan. Internet of Things (IoT) involves a network of connected physical objects embedded with sensors. Some of the important components of IoT include:

  • Sensors
  • RFID inventory tracking chips
  • Near-field communication (NFC) tags
  • Barcode scanners
  • Related software

Prioritize your finished goods

The important step towards inventory management is to prioritize your finished goods per the value and the sales volumes. The dashboard of the inventory management software will reflect the priority of your finished goods. These can be tracked to their respective raw materials and the time taken to process them.

Determine par levels

The next important step is to decide the par levels of each product. Some of these could be:

  • The time taken for the raw materials to reach your company
  • The amount of raw materials required to process each product
  • Sales volumes of each product every quarter/ cycle

Based on your marketing, you can change the sales volume and the software will accordingly map your inventory requirement. With the implementation of GST, the check posts were removed. This reduced the goods’ transportation time and consequently your inventory procurement time.

Less procurement time means you can reduce the minimum threshold of inventory, which prevents the blockage of cash required for buying the stock. This helps you maintain better cash flows and the liquidity ratio.
Suppose a product is not moving on the shelves, the inventory management software helps you to take the necessary measures. You can either stop the further purchase of that raw material or sell off the extra ones.

First-in, first-out (FIFO)

First-in, first-out is an important rule of inventory management. The oldest stock gets sold first. This is applicable to both perishable and non-perishable products. If the oldest raw material/ finished shock is not utilized/ sold off, they soon become redundant and obsolete in terms of quality and market trends.
Any change in the inventory pattern can be tracked with the help of inventory management software.

Inventory management software helps to:

  • Reduce costs
  • Minimize wastage
  • Increase efficiency in merchandising
  • Maintain cash flows and
  • Save on storage costs

They form the essence of your business financial plan. You can also use GPS systems to track the delivery of your finished goods to your clients. DHL and Cisco predicted in 2015, that IoT technologies could make an impact of USD 1.9 trillion or more on supply chain, and logistics.

Capgemini Consulting and GT Nexus conducted a global research study called 'The Current and Future State of Digital Supply Chain Transformation'. According to the study, 70% of the manufacturing and retail companies have already started a digital transformation project in their supply chain and logistics operations. Investing in these tools to increase your profits, and to stay ahead of the curve, reflects financial prudence. These costs can be financed with a business loan.

Additional read: Capital budgeting

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