Inventory is a valuable and important asset.Being able to manage it effectively will most likely help you develop the profit margin of your buisness .For many buisnesses,inventory is the single most expensive investment,they hold.It has become more of its total capital into inventory.Unfortunately,in today's economy,having too much inventory has proven to be a burdenfor the most companies .It needs to be understood,that inventory is directly correalatedwith cost and risk.
Understanding how your goods turn in to excess inventory is important, and hoew excess inventory is costing you money daily. Businesses are always worried when they see that their inventory isn't moving as quickly as they had expected. It is only common sense that when the economy gets tight consumer spending gets tight. When consumers are not spending as musch money, you're going to be stuck with slow movien inventory.
The following are ways in which your excess inventory is costing you:
Unfortunately, most people don't have the cash available to but their inventory outright and are forced to borrow. If this inventory is not selling quick enough or bringing in any sort of revenue, then your costs are snowballing asx your interest continues to grow. At what point will you pay this off, and with what money? At some point, you are going to need to cut your losses, but how long are you going to wait?
Depending on how much warehouse space your inventory uses and how long you have las it, your cost to store your inventory can become unpleasently high. Also, think about the inventory that you could be purchasing but cannot due to limitation on space. Your excess inventory is now stopping you from purchasing new inventory that could actually be making you money.
Depreciation is perhaps the most obvious one of your coasts. Atre your goods that are not selling worth what thay were a few months ago? Depending on the product, most likely not. Typically, the longer you sit on your good, the more value they lose.
How much of your time are you spending on this excess inventory? Whether you're constantly thinking about what you're going to do whit the inventory or why it didn't sell as you expected, yourr inventory is a distraction. More than grief and stress, this excess inventory is tying up your capital that could be used for newer and better invstmensts. In the end, it should be clear that excess inventory can be busiess killer if it is not taken care of in a timely manner. It stifles a business's productivity from top to bottom. inventory follows a product's lifecycle, it needs to be constantly moving. The less movements in your inventory, the more risk you business is facing.