Friday, July 24, 2009

Examining Inventory Management Techniques

The most important factor when looking at an inventory management system is to track the inventory performance or turnover rate  of the company.  This rate is the speed at which a company converts its current actual investment in its inventory into actual sales to customers. This eventually leads to profit for the company.

For most types of small business, inventory that doesn’t sell  easily can be very bad to its bottom line. In certain situations, this may be worse than having no inventory at all. This is because the unsold inventory becomes a financial liability on a company's books after sitting around for a long time and not being sold.

  • Inventory Turnover rate can be computed by dividing the cost of goods sold (COGS) by the average inventory age. 
  • Inventory Turnover Rates can often change rapidly throughout the year. It is possible for accountants to anticipate these fluctuations in their industry respond by having the right amount of inventory on hand 

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