The Quick Formula for Effective Inventory Management

Oct 28, 2021


Managing your Inventory Management System would require a lot of planning and labor. It is not an easy task as everyone else thinks. We are into the software development industry for almost a decade have always been concerned about the businesses that highly deals with inventory systems. And that is why we decided to come up with ideas like inventory management software, and invoicing software.

We also wish to let our customers know the math behind handling the inventory management system, to help them with their daily chaos. This is an initiative that would help even you and your businesses.

Do you think how? Handling inventory management system is a daily routine in retail businesses. But the math is head breaking. That is where inventory management software or systems help. But how does it work? Nobody knows.

To break this suspense among our users and customers, we are revealing the math behind ab effective inventory management system. Would you like to know how it works? Stay with us and scroll down.

Getting the math easy:

Before you choose to learn the formula, you should have a clear idea of what a good inventory system is. Let us have a quick run through on what a good inventory system looks like.

Good Inventory System:

The following are the key elements to a well-organized inventory tracking system. If you are kick starting with your business or you are running a small business, you should be aware of these key elements to grow your business effectively.

·         Create neat location names and clearly label all locations where items could also be stored.

·         Use well organized, consistent, and unique descriptions of your items, starting with nouns.

·         Keep item identifiers (part numbers, sku’s, etc..) short, consistently formatted, unique, and avoid common pitfalls.

·         Decide if you'll have to use units of measure, and if so, confirm they're formatted consistently and used properly.

·         Make sure you've got an honest starting count of all your items, their locations, and the other relevant inventory data

·         Use a listing tracking software like ecBill. Spreadsheets or written lists don't work well within the future.

·         Create solid inventory management policies and train your people to follow them.

The Math:

Calculations are always boring and time consuming. Once you understand them it is way easier to handle them day to day. Here is a simple math along with a few effective examples that can help you with handling an efficient inventory management system.

Calculate the cost of goods sold (COGS) using your invoices or records.

For Example:

Match Boxes cost $2 each to produce, and Nick’s Matches sold 600 Boxes during the year.

COGS = 600 x $2 = $1200

Track your invoices to calculate the closure inventory and the quantity of new inventory purchased or produced during the period.

Example: Nick’s Matches had 800 Boxes in stock at the end of the previous accounting period and produced a further 1000 Boxes during the next year.

Closure inventory = 800 x $2 = $1600.

Produced inventory = 1000 x $2 = $2000

Now sum the closure inventory and cost of goods sold.

Example: $1600 + $1200 = $2800

Now to know your beginning inventory, minus the amount of inventory purchased from your result.

Example: $2800 - $2000 = $800

$800 is your beginning inventory.

Wrap Up:

Besides the technological advancements, it is very much essential to know the math behind handling the inventory management system. This is where most companies and production warehouses fail their responsibilities. Understanding the need of the hour, we have made this post to help most production units to maintain an effective inventory management system.

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