Leadership Consulting Services

How does inventory management affect profitability

Inventory Management and its Impact on Profitability

Inventory Management and its Impact on Profitability

Inventory is among the main present assets of an organization. Therefore, the quality of inventory management has a direct bearing on the organization’s bottom line and an indirect impact on its top line too. Let us look at inventory management impacts the sustainability, productivity, efficiency, sustainability and growth of an organization. Profitability. There are costs associated with inventory. They can be widely classified as order costs, taking reductions and costs on account of compensation, obsolescence and thefts. These costs are directly proportional to inventory. 

Nevertheless, inventory contributes to other indirect costs like HR costs and finance costs. A good inventory management approach goes a considerable way in containing these prices, therefore improving profitability. Tracking the expiry dates of stock and triggering alerts appropriately can minimize losses due to obsolescence. Putting in place a good inventory management system would allow the organization to evolve strategies that are appropriate to sell those items which is approaching expiration, which then curtails losses due to obsolescence. A comparable approach can be adopted with respect to non-moving stocks too. 

Consequently, a good inventory management system will be a two-pronged approach to reducing costs and reducing losses contributing towards improved profitability. Productivity and efficiency. Inventory is an important element in the operation of all of the departments of a business, such as advertising, sales, production, HR management and fund. A good inventory management system such as Unleashed can help to raise the assurance of the marketing and sales employees as they can get new clients or commit to repeat orders from existing clients without the fear of delays in delivery. This in turn would enhance the productivity of the sales and marketing departments. 

A sound stock management strategy can help to curtail the down time of the production department as it ensures the availability of stock in accordance with the production schedule. This can help to improve the productivity of the HR associated with production. The finance department also stands to benefit out of a good inventory management strategy since they can guarantee efficient working capital management and enhanced cash flows. This will help them reduce their dependency on borrowed funds, thus decreasing fund expenses. 

Consequently, the productivity and efficiency of the finance department would improve along with and the direction can then be placed on the critical a rise in profitability. A successful inventory management system eases and the direction can then be placed on the critical mail/mobile alarms in the case and the direction can then be placed on the critical. The attention of the workers problems, which can help to avoid putting efforts towards non productive pursuits. The top management can concentrate on the macro issues as opposed to the issues at grassroots inside the business.