How Inventory Management Can Benefit Your Business

In an organization, inventory management refers to the process of organizing and tracking inventory. This process involves the planning, storage, and reporting of raw materials, finished goods, and inventories. It also keeps track of sales and profits. While not all companies go through all stages of inventory management, each company should understand how to keep track of its inventory. It should also know where and when to order more.

Finished goods inventory

Finished goods inventory management is a powerful technique that allows companies to determine the right inventory level for their products and services. This type of management allows companies to minimize stockouts while keeping customers happy and profitable. ShipBob provides inventory optimization and fulfillment services to help businesses manage finished goods inventories. This article will examine the benefits of finished goods inventory management and the factors that can make it an effective tool for your business.

One common example of finished goods inventory management is the production of soda cans. To produce a soda can, a manufacturing company will order thousands of aluminum sheets. These sheets are then processed through the production process to produce cans. These finished goods are then stored in finished goods inventory. Finished goods inventory management is important because it helps companies set a profitable price for their products. This value will include direct materials, labor, and overhead. The COGM formula is simple: start with the beginning finished goods inventory value (COGM) and subtract the COGS from that same period.

Finished goods inventory management can help companies understand their profit margin and future budgeting needs. By properly calculating finished goods inventory levels, companies can better understand the demand for goods and reduce the risk of missing sales. Furthermore, they can ensure that raw materials and storage space are not wasted. This helps them meet customer demand and ensure they have the best product possible.

Finished goods inventory management helps manufacturers identify the exact quantity of raw materials and finished goods they need. By tracking the finished goods inventory value, companies can avoid backorders and missed sales, resulting in increased profitability. Because finished goods inventory is typically the biggest cost for a manufacturer, regular calculations of finished goods inventory will help businesses plan future purchases, keep waste to a minimum, and keep their financial budgets accurate.

Just-in-time (JIT) inventory management

JIT inventory management is a common practice in commerce, and it aims to ensure that a company never has too much inventory, thus reducing waste and increasing efficiency. It relies on constant communication with manufacturers and requires dedicated software to monitor inventory. Its advantages include a reduction in warehousing budgets and cost.

JIT inventory management is a cost-effective strategy that helps improve manufacturing control, improves cash flow, and promotes flexibility. It also helps minimize stockouts and overstocking and allows producers to react quickly to market changes. It is most effective for businesses with an agile production process. It also ensures faster delivery and lower transportation costs.

JIT inventory management helps companies minimize raw material inventories by receiving deliveries in small quantities. Local sourcing also contributes to timely delivery. Moreover, it reduces the need for safety stocks, enhancing productivity. In addition, it cuts production runs, reducing the time and resources involved in manufacturing processes. This process also simplifies engineering change orders.

JIT inventory management can also help companies reduce costs by reducing inventory holding costs. By tracking sales data, companies can predict when and how much of a product will be needed to meet demand. Moreover, they can develop relationships with reliable vendors to maintain a smooth supply chain.

As a result, JIT adoption improves efficiency by preventing excess inventory, waste, and ensuring a healthy cash flow. It also reduces lead times, and ensures product quality. JIT emphasizes getting it right the first time and reduces rework and inspection costs. This results in a higher return on investment and allows manufacturers to control the market.

Purchase order management

Using software for purchase order management can help you keep track of all the details surrounding your inventory. You can even view the performance of your vendors and the reviews they have received. This will save you time and reduce the risk of fraud. In addition, these programs usually allow you to generate invoices and track your bills online.

Purchase order management is essential to managing the flow of inventory. A good system allows you to automate the process of creating purchase orders, based on lead times and other factors. It can also help you avoid stockouts of unique inventory items. Creating triggers based on the number of items in stock can be helpful in avoiding this problem.

Purchase order management software makes it easy to manage inventory. By automating the entire process, you’ll be able to streamline the ordering process and increase your productivity. Using the right software for purchase orders will help you improve your business’s productivity and customer service. Using a specialized software will help you automate this process and ensure that every order is processed accurately.

With the right system, purchase order management can help you improve relationships with your suppliers. It makes the ordering process easier and more efficient for your suppliers and improves cash flow. Plus, it allows you to reduce the amount of inventory that you hold at any one time. In short, purchase order management involves five steps. The first step is to plan and design a purchase order. This step takes place in your purchasing department. Buying managers create a requisition for the goods or services they need.

Purchase order management is an essential component of effective inventory management. Without it, you can end up with a business that does not have enough stock. The consequences of poor purchase order management are expensive stock, dissatisfied customers, and more. Additionally, purchase orders allow you to track your inventory accurately and keep orders filled promptly. With an efficient purchase order management system, you can keep your business running smoothly.


FIFO, or first in, first out, is a method used in inventory management. It ensures that ending inventory values reflect current market prices. It does this by ensuring that items purchased earlier are pulled from inventory for retail sales or production. The method also simplifies COGS calculations because the oldest items are sold first.

Using FIFO means that the oldest items are used first, with the most recent ones at the end. This means that the most recent inventory is generally more expensive than the oldest. This means that a company must calculate its cost of goods sold (COGS) at the end of each accounting period or fiscal year. It also means that ecommerce inventory is treated as an asset, and its cost of sale reflects its COGS at the end of that period or fiscal year.

FIFO is usually the method of choice for many businesses. It is a simpler way to calculate stock costs and is more likely to reflect the cost of raw materials than LIFO. Unlike LIFO, this method will not result in any errors when calculating stock values. It is also better for tax purposes.

FIFO is a common practice in inventory management, but it is not the only way to value inventory. It is also a standard accounting method, assuming that goods are sold in reverse order of purchase. Companies often use it because of its simplicity, transparency, and ease of use. It is an effective method for businesses to use in the context of inventory management.

Choosing the best inventory valuation method depends on the nature of the company’s operations. The method will affect the company’s balance sheet and income statement. In the FIFO method, all assets in inventory are matched up with recently produced or purchased ones. Using this method is easy to understand and results in a higher final inventory value, a lower cost of goods sold, and a higher gross profit.


While the LIFO method does have its advantages, it isn’t the most natural way to manage your inventory. For example, most businesses don’t leave old stock lying around, waiting to be used. Alternatively, the weighted average method uses the average cost of the items in stock. For instance, if you own Elite Roasters and bought them on March 1 of this year, you would allocate the quantity of that product to the beginning balance of your inventory.

Businesses that use the LIFO method may find it difficult to determine which items are most profitable. For example, a supermarket chain will most likely use the FIFO method for inventory management. The reason for this is that it ensures that older goods are sold before those with later expiration dates. However, a supermarket chain could use either method in certain cases.

Because it costs less to keep older inventory, LIFO can be a beneficial strategy in some situations. For example, it can help a business whose inventory is expensive. Because the newest inventory is cleared first, it will eventually become less expensive, which will increase its cash flow. However, the downside of LIFO is that it reduces reported profitability. Furthermore, the higher costs of the inventory will ultimately be pushed into the cost of goods sold, reducing profits.

Another advantage of LIFO is that it makes record keeping easier. Because of the natural turnover of items, FIFO is a better option for those who want to keep track of their inventory values.


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