Keeping inventory under control can be a monumental task without the right tools to manage it. If your business receives thousands of raw materials or part items and creates many different types of products, keeping track of inventory in all stages, along with labor and costs involved in production, is only tangible with highly functional inventory software.
Inventory isn’t just your items for sale. What else is it?
- Raw Materials or Parts – Ingredients or parts used to make products
- Work in Progress – Keeping track of stock that is going through the production process is important to account for all inventory. Although not yet fit for sale, work in progress still involves raw material or parts costs, labor, overhead and operations inventory.
- Finished Goods – Inventory that is ready to sell to customers
What’s the Best Way to Keep Track of Inventory?
Although fine initially for some small businesses, Excel spreadsheets can do the job while a company is relatively small. To prepare for growth and keep everyone operating from the same set of data, logging all the details about each inventory item, starting with arrival to your business, is the best way to keep track of its every step.
To keep up with today’s demanding consumers, speed is essential, and businesses can do a better job of staying on track with demand when scanning barcodes instead of manually entering inventory. As soon as this data enters the software, the tracking process begins.
You can record many data fields for each inventory item including:
- Expiration date
- Lot number
How to Keep Track of Inventory
How much inventory you keep will vary depending on the nature of your product.
Here are some different scenarios to consider:
If you manufacture food or chemicals, you cannot hold on to inventory very long because it will spoil. Some food items spoil faster than others; fruit has a much shorter shelf life than nuts. When planning how much inventory to order, the shelf life must be considered, including the lead time to bring those raw materials to your door. To be successful, you’ll aim to deliver only high quality, fresh products to your customers. Your production processes, packaging, fulfillment, and shipping must all be coordinated to move inventory along and out the door before it spoils. You don’t want to order too much of products that spoil fast but you must ensure you have enough to keep the production line operating to keep up with demand. Figuring out how much to order depends on how much you expect to sell.
On the other hand, if you manufacture automobiles, you might have some inventory you need regularly to complete the body of the car, but other items are customizable, like seat finish, car color, and other extras. You won’t need the same number of options for every car sold. Just in time inventory is a method that works well for auto makers because they only order what they need to customize the vehicle when the sale occurs.
A third scenario is when a business keeps extra stock on hand, referred to as safety stock, as a backup in case demand increases. The amount of inventory kept in safety stock is usually the amount that would normally sell during the time it takes to receive the next order from the vendor.
In any of the above mentioned scenarios, the goal is always to minimize inventory on hand so not to waste product or incur additional expenses from excessive inventory. On the other hand, you don’t want production to come to a standstill or face shortages at a time when sales are coming in steadily. Inventory management aims to keep these scenarios in check.
Inventory Record Keeping Methods
- Most businesses will employ a first in first out method of accounting, moving inventory along in the order of arrival. This is always the best option for any type of perishable item.
- There are some situations when last in last out is preferable. Oil, for example, is normally sold at the most recent price rather than the price it was earlier in the year.
- A third method is weighted average which takes the average cost throughout the year.
Keeping inventory organized and controlled while streamlining processes to save money on labor and waste is a simplified process with SOS Inventory. SOS takes organizes all locations, workflow stages, inventory counts, costs, labor, and other information you want to track and presents in an easy-to-use platform for everyone at your business.