Managing your Inventory

​Many businesses struggle with understanding the most efficient inventory levels. Several factors determine how much inventory to carry of a product and the required levels may change dramatically throughout the fiscal year. The advantages and disadvantages of maintaining low inventory levels as opposed to high levels can be influenced by internal and external factors. These factors include everything from carrying costs to the locale and reliability of the supplier.
 
Lower Inventory Levels
 
Advantages of maintaining low inventory levels are: manageability, low carrying costs, and minimal space constraints. Fewer quantities of inventory are easier to count and ensure no product is missing. Lower quantities require less of a carrying cost, which can save money for your organization. With fewer products, there’s also less need for space in which to display or store the quantities. This means your business can have a smaller retail space, which can save money on your mortgage or lease.
Disadvantages of maintaining lower inventory levels are: potential customer service concerns, increased re-order costs, and more time spent managing the product levels. If your business runs out of the product because there was not enough on hand, you run the risk of losing customers, who may become frustrated with having to wait. Ordering in fewer quantities may also lead to increased fees because distributors may charge more for making smaller batches. You will also run the risk of spending more time trying to manage the fewer quantities, constantly counting and watching to determine if a re-order is needed, which takes time away from customer interactions.
Higher Inventory Levels
Advantages of maintaining high inventory levels are: customer satisfaction, less time worrying about ordering, and potential bulk order cost savings. Having larger quantities of inventory on hand means that customers will never feel the frustration of having to wait for the next shipment to arrive. Increased inventory also frees up time that would otherwise be spent constantly monitoring the stock levels to determine when to re-order. Most significantly, increased savings are realized when ordering large quantities, or ordering in bulk.
Disadvantages of maintaining high inventory levels are: increased carrying costs, possible space constraints, and the risk of the product becoming obsolete before your business can sell through the units. Maintaining high inventory levels means increased carrying cost and the need for a larger storefront and/or storage space. Your business may have to pay high rental fees or pay a larger mortgage to maintain the space required to house the entire inventory. There is also the risk of the product becoming obsolete or having no further customer value. If a clothing store orders a large volume of the latest fashion trend, there’s a great risk that the clothing will become unfashionable before the store can sell through their inventory. This will leave the clothing store with obsolete product.
The Big Picture
There are several ways to determine the most efficient inventory levels for your business. Your responsibility as a business owner is to choose the best inventory management model based on researching the cost savings and liabilities associated with each model. The goal is to know how much inventory is required for optimal customer service, the right times to re-order, the right quantities to reorder, and how much savings can be gained within the ordering process.
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