Why Inventory Management Is Important?

Inventory management is a prime component of COGS (cost of goods sold) and therefore its a key driver
of total assets, profitability and tax liability. Financial ratios, such as inventory turnover ratio comprise of
inventory values for measuring certain elements of the financial health of a business. For these reasons,
and changes in product and other materials prices that affect the inventory value we can say inventory
management is important. In addition, inventory management is also a vital component to manage the
supply chain of the company. While chunking money to buy the excessive stock a company can end up
paying more for shipping, insurance, warehousing and allied services for transporting and maintaining
the inventory. Finding the best alternative to buy, store and manage inventory can make a huge
difference between profits and losses. Holding inventory requires a lot of liquidity. That’s the reason
why a good inventory management is important for a company to grow. Like the cash flow, it can make
or break your business.

What can be saved due to Inventory Management?

An effective inventory management can result in saving in a few critical ways:

 Avoid Spoilage

Commodities that have an expiry date (like makeup or food item), have a high chance to get
spoilt if the product isn’t sold in time. A good inventory management system helps a business to
avoid needless spoilage.

What are the benefits of Inventory Management?

In addition to making the business more organized, a good inventory management can also help in the
following ways:

 It helps to keep the business profitable

 It reduces and eliminates unnecessary costs
 It helps in achieving economies of scale
 It analyzes sales patterns and forecasts future sales
 It also analyzes performance against competitors
 It also prepares the business for the unexpected situation

Conclusion
An efficient and effective inventory management is very important to ensure that a business has enough
inventory on hand to fulfil its customer demand. Improper handling of inventory can result in losing
potential sales or blocking money due to the stocking of excessive inventory. An effective inventory
management can help a business in preventing these mistakes. With an optimum inventory
management in place, an organization has a better chance for long-term survival and profitability.