For some busi­ness­es, inven­to­ry can be one of their largest assets and/or their largest expense.  Poor inven­to­ry man­age­ment can make or break a bot­tom line.  Below are some ben­e­fits of prop­er inven­to­ry management:

Improves cash flow: Pur­chas­ing inven­to­ry decreas­es cash.  When inven­to­ry sits on the shelf too long it is basi­cal­ly cash not work­ing for you.  When inven­to­ry sells it does turn back into cash.  Prop­er inven­to­ry man­age­ment helps to deter­mine the fine bal­ance of hav­ing too much inven­to­ry ver­sus too little.

Bet­ter man­age­ment deci­sions with accu­rate finan­cial state­ments: Prop­er inven­to­ry val­u­a­tion affects the cost of goods sold, gross prof­it, and net income on the income state­ment, and the amount of cur­rent assets, work­ing cap­i­tal, total assets, and stock­hold­ers’ or own­er’s equi­ty report­ed on the bal­ance sheet. Incor­rect inven­to­ry val­u­a­tion can cause the income state­ment and bal­ance sheet to be incor­rect and lead to man­age­ment deci­sions that are based on bad data.

More effi­cient employ­ees: Prop­er inven­to­ry man­age­ment means that the quan­ti­ty of inven­to­ry on hand is accu­rate and orga­nized in the ware­house.  Employ­ees do not spend wast­ed time look­ing for inven­to­ry or deter­min­ing how much they need to buy so they can fill cus­tomer orders more quickly.

Pre­vent loss­es: Main­tain­ing prop­er inven­to­ry lev­els decreas­es the poten­tial of prod­uct expi­ra­tion, the pos­si­bil­i­ty of inven­to­ry dam­ages, and inven­to­ry from going out of season.

Cus­tomer sat­is­fac­tion: More real-time under­stand­ing of what’s sell­ing and what isn’t allows for infre­quent back­o­rders, etc.  Not keep­ing the right mix of inven­to­ry on hand can dri­ve cus­tomers to oth­er suppliers.

Pre­vent fraud: Prop­er inven­to­ry man­age­ment is a form of inter­nal con­trols.  Hav­ing prop­er con­trols over inven­to­ry pre­vents theft from occur­ring.  No one wants to think that their employ­ees would steal; even less want to deal with an inci­dent of employ­ee theft after it has occurred. The only way to reduce the uncom­fort­able con­ver­sa­tion and poten­tial­ly cost­ly expense is to take mea­sures to reduce the oppor­tu­ni­ty for employ­ee theft.