The Importance of Inventory Management in the Supply Chain Industry

The Importance of Inventory Management in the Supply Chain Industry

The supply chain is one of the most essential aspects of running a business. There are tons of opportunities for companies that are looking to save money through their supply chain. Inventory management is an area that many companies tend to overlook. However, this is a great place to start when it comes to increasing the efficiency of your supply chain.

Inventory Management Basics

The concept of inventory management is fairly simple. Companies want to carry enough inventory to maximize sales, but not too much inventory because this can result in large price reductions. If a company has too much of a product when it comes time to discontinue it, the company will have to drastically reduce the price in order to get through the inventory.

Improving Gross Margin

Gross margin is one of the biggest factors that companies must report on. This is found by taking the retail price of a product and subtracting the landed cost of the product. This is both the cost of the product and freight costs to get to the distribution center. When a company carries too much inventory, reducing the price on the product to clear it from stores results in margin erosion. This can play a huge role in companies having to reduce financial expectations over a long period of time.

Having Adequate Inventory Levels

There are many companies that struggle with having adequate inventory levels to maximize sales. One of the biggest areas that companies can concentrate on is their sales forecasting. By being able to forecast sales, companies are then able to project out when they will need inventory the most.