How Divorce Attorneys Can Leverage a Financial Advisor | Free Webinar

4 Steps to Better Inventory Management for Manufacturers and Distributors

By: Ed Thompson

For many manufacturers and wholesale distributors, inventory is one of the company’s largest and most valuable assets. But it can also be one of the most costly for manufacturing and distribution and companies.

Proper inventory management can increase your company’s profitability and cash flow. Take these steps to help your bottom line:

1. Carefully analyze current sales trends to make better purchasing decisions and potentially reduce inventory levels

This needs to be done on an ongoing basis. For example, it is important to monitor current reorder quantities to avoid overstocking an item. By not overstocking inventory, the need for credit can be reduced. Even if cash is not an issue, don’t forget the hidden cash opportunity costs that arise.

On the other hand, sales can be lost by not having the proper inventory levels. In today’s demanding marketplace, customers won’t accept backorders and long lead times. Regularly monitoring sales trends and inventory requirements is critical to the continued profitability of your company.

2. Leverage your vendor relationships to reduce inventory costs

Is your vendor willing to extend payment terms for your ongoing commitment? Make sure you’re familiar with vendor rebate levels, incentives and return policies. Vendors might be willing to make more regular deliveries to reduce waste and spoilage. A strong vendor relationship can go a long way to increase your profitability.

3. Take an ongoing periodic inventory of high-dollar items

Most businesses take a complete inventory at least once a year, but regular counting of specific areas within the warehouse can identify potential problems faster. This gives you the opportunity to address the issue sooner rather than later, potentially saving your company money.

Proper security of your inventory will help increase profitability. Depending on your inventory type and value, the cost to properly secure, maintain and control inventory might be a valuable investment. Inventory shrinkage will have a direct negative impact on your bottom line.

4. Be careful with special order items for customers

Make sure the customer is required to buy the entire quantity that you are required to purchase from your vendor. When a distributor special orders by the case but sells to the customer in non-case quantities, there is a high likelihood the leftover items will become dead inventory. Whenever possible make sure the sales price is based on the total cost of the items you must buy. Obviously, dead inventory will be detrimental to your profitability.

More Tips for Better Inventory Management

Whether you are a manufacturer or a distributor, efficient and effective warehousing will improve your profitability. There are many more steps you can take toward smart inventory management, including:

  • Attempt to organize and store inventory in a manner that will minimize the cost-to-pick orders

  • Assign primary pick locations for the products that are used or requested most often. This will save time and money.

  • Use barcoding equipment and software to minimize picking mistakes that will not only cost more time, but could cost you a customer. Technology can be a cost saver in the warehouse.

Forgetting basic inventory management and control can be costly to you and your company. Inventory management and control is an ongoing process that is critical to your company’s overall profitability today and in the future.

Need Help?

Contact us online or call 800.899.4623.

Published December 3, 2015

On-Demand Webinar

How to Know When to Upgrade Your Accounting System

ERP webinar recording

New R&D Tax Credit Reporting Requirements On the Horizon

Businesses that capitalize on the popular Research and Development Tax Credit need to be aware of changes in reporting...

Virginia Issues Guidelines to Retroactively File 2021 Pass-Through Entity Tax Returns

Virginia’s Department of Taxation has issued long-awaited guidance on pass-through entity tax returns. Here’s what the...