Do you know what a company’s most important asset is? Its inventory so it should be effectively, accurately and proactively managed. At the same time, having more or less inventory affects the profitability and productivity of a business. Therefore a business must hold target inventory. The prime objective of having a sufficient inventory is that you never run out of stock or miss the consumer service target. It is because when a customer needs a product and did not get it he opts for a different company. Moreover, missed sales, losing customers, pending payments and surplus stock of least demanded product will bring huge loss to your company.
Therefore, inventory managers work on managing an optimal stock in inventory through effective management techniques. It improves profitability by cutting the additional costs on the least demanded product and utilizing the available opportunities by investing in required products. Thus target inventory is a cause of concern of every organization. However, your business decisions will be affected by several factors. Here are those factors.
Influencing factors for target inventory
Consumer demand fluctuates and this is one of the greatest challenges an inventory manager has to face. The priority of a business is to serve the customer at the time when they need. This requires successful estimation of future demand, accurate measurement of inventory level data in real-time, accuracy and purchase of goods. Moreover, there should be enough stock in the target inventory so that customer’s unexpected demands can be met without facing any overstock or understock issues.
Time to buy
Seasons affect the inventory holding of business as during peak seasons they need more inventory and less inventory during off-seasons. It is necessary to hold the inventory in advance to meet the demand during peak seasons.
Working on low-cost offers requires necessary capital for a business which has direct links to the inventory available in the current. However, if the storage cost is more than it will tie up the cash flow business and giving competitors an upper edge to offer low cost offers to customers. Therefore, they must hold the target inventory to make themselves capable of utilizing the capital for future demands.
Apart from fluctuating consumer demand, there are many more factors that make the inventory value uncertain. In case the price of goods have drop then the business would have to spend on holding costs whereas if the goods values rise and business hold less stock then they will probably lose good money.
So, the solution is to effectively manage the inventory in short to have target inventory. The business should ensure that there is neither too much stock nor too less stock. This will help in protecting the organization from an unexpected and sudden flow. Also, it will prevent you from holding excess inventory costs.
An inventory manager has to consider all the factors to manage the target inventory. It could be challenging due to the uncertainty of the market and fluctuations. Therefore, it is wise to use inventory management software.