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Understanding Inventory Control and Formulating an Effective Scheme for a Highly Profitable Business

Managing a business is not an easy task. One of the most important tasks of entrepreneurs and businessmen is controlling their stocks. Inventory control, otherwise known as Stock Control, is the management of stocks and maintaining the balance of expenses and profits by keeping stocks on hand. The importance of having items on hand is crucial to the success of every business because demands may arise in any situation. Knowing how the quantity of the items to be stored and implementing a good control of inventory can help entrepreneurs maximize their profits. It is very important for businessmen and entrepreneurs to full understand the related costs in having stocks on hand, running out of stocks and when to place orders in order to obtain the right formula and create the best inventory management scheme for the business.

Keeping an unlimited supply of goods is next to impossible and it is not the best option for keeping items available whenever needed. Not all businesses can make great profits to buy unlimited goods to keep their inventories large. Another reason is not all goods can be stored without losing their quality. The cost of purchasing items and the storage costs to keep the items in good condition are not always profitable and in most cases, can make businesses lose huge profits. However, supply shortage is inevitable and the need to stock up on goods will always be necessary. Entrepreneurs must know when to purchase and the quantity to be purchased, plus the additional costs of storage.

Inventory Control

In some situations, when entrepreneurs are too cautious about losing profit by stocking up on goods, the business may encounter frequent “out-of-stock” incidents that can cause negative impacts on the business. An effective inventory control scheme is necessary to ensure that “out-of-stock” incidents are minimized and unwanted profit losses are avoided. Businesses must not always expect that “out-of-stock” incidents will be rare occasions; once it occurs, it is about time to revise the inventory management scheme. If an effective plan is carried out, the business can avoid shortage, save more money and earn higher profits.

Another important concept in controlling inventory is the re-order point, which refers to the time when new stocks are purchased and stored. Based on the business needs and demands of the clients, entrepreneurs can make a prediction of the best time when to do the re-ordering of goods. The time between two orders must not be very short to ensure that the storage room will not run out of space, keep goods in their best conditions and avoid possible financial losses due to either shortage or surplus of goods. Determining the perfect time to do the re-ordering will require a businessman to know the time frame of delivery and the right amount of quantities needed by the business by the time it arrives. In addition, the overhead costs, miscellaneous fees and shipping expenses of ordering small quantities versus ordering large quantities must carefully evaluated to ensure that the re-ordering point will be highly beneficial to the business.

Businessmen and entrepreneurs must keep in mind that inventory control plays a vital role in managing a business. An efficient scheme for controlling goods can save a businessman from unnecessary trouble and can help him save and earn a lot of money. Moreover, the pleasant feeling of satisfying the needs of customers and earning their loyalty is the best part of running the business through effective control of inventory.