One of the main aims of inventory management is to hold inventory for less time. This reduces stock handling, lowers losses due to damage or spoilage, and reduces the risk of products becoming obsolete.
You’ll also find out which product lines are bringing in the most customers (highest sales), versus generating the most revenue, versus delivering the best margins. That’s all good to know.
How to start optimizing inventory
You can see the value of your inventory and you want to manage it smartly. So what do you do?
Inventory optimization is a big topic, and it can involve a lot of math, but you don’t have to jump straight in the deep end. Here are three things you can do right now to get on the right track.
1. Begin with an ABC analysis
Financially speaking, not all inventory is equal. A small proportion of items often drive a lot of your sales and profits. This is often called the 80/20 rule. An ABC analysis involves sorting your inventory into three broad categories: