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Standards of Performance for Inventory Management

Your product is your greatest asset, no matter if you are selling chocolate, plumbing supplies, snowboards, or other body-care products. You are a product-based company that focuses on making your products unique, high-quality, and marketable, while also managing the costs of manufacturing, shipping, storing, and delivering your products to your customers.

Inventory is the inventory of products that you have in stock. It can be raw materials or partially finished products as well as packing materials.

Inventory management refers to the process of making sure you have enough inventory available to satisfy customer demand, while also investing in new products or selling inventory at a profit. It includes all aspects of manufacturing and shipping your product to your customers.

Inventory management and cash flow go hand in hand. It is essential to determine how your working capital can be best used to invest in inventory. This will ensure your profitability. We’ll be discussing the key costs of inventory and the challenges associated with managing them. Finally, we will discuss how a business credit line can help you overcome those problems.

Read More: Getting Ready for Wholesale Inventory Management Software

Inventory management costs

Your business is product-based, so your operations are centered around optimizing and developing your inventory management strategies and techniques. There are many factors that affect how much inventory you should spend. These factors will change as your business grows and adapts to seasonal sales changes.

When you invest in inventory, you are often paying more than the product itself. You need to be aware of all costs associated with inventory in order to optimize your inventory management strategy.

It is a good place for you to start. This includes all costs your business incurs in producing your product. Your COGS can be found on your income statement. You can also use the COGS formula for calculation.

COGS and general inventory acquisitions can result in some of the following costs:

  • Manufacturing Costs: These are the costs of materials and labor required to make your products.
  • Costs of holding or carrying stock: Cost of storing and storing stock until it is sold or shipped to the customer.
  • Landed cost: Costs of shipping, freight, import fees, and taxes as well as duties and other costs associated with the transportation of inventory.
  • Distribution costs: Costs incurred to deliver your product from the manufacturer to customers or retailers. These costs are usually not included in your COGS calculation but can include marketing and advertising.

Inventory management challenges

Product-based businesses have to fill in the gap between investing in inventory and getting paid. This is one of the biggest hurdles they face. It could take several months for sales to be realized from the inventory that you have purchased. This depends on the business model.

Direct-to-consumer brands are subject to a longer sales cycle than B2B and wholesale companies. Direct-to-consumer brands might need to pay for products months in advance of when they will be available for sale.

Third-party distributors are often required to wait for retailers to pay distributors and then for distributors to pay them. B2B companies often have a delay between receiving a purchase order from a customer (PO) and receiving payment.

Also, businesses need to remember that they must have sufficient inventory to meet demand. However, too much inventory can lead to increased holding costs and a decrease in cash flow.

A business line of credit can solve your inventory management problems

With the right resources, it is possible to master the continual juggling act of inventory management and cash flow. Inventory financing is one-way businesses can overcome the difficulties associated with inventory management.

A short-term loan or credit line for inventory financing can be used to pay the upfront cost of inventory purchases or invest in inventory-related expenses such as manufacturing supplies or warehouse space. Most inventory financing options use the inventory as collateral.

For small business inventory financing, business lines of credit offer the best solution. A line of credit replenishes itself as you pay off the balance, which is different from a loan. This gives you constant access to the funds that you need to cover the inventory costs. Once inventory is sold and cash flows in you can use the credit you have to pay off the line of credit.

A line of credit allows you to finance inventory while stabilizing your cash flow. It also ensures that you have enough stock for your customers’ needs. This can be used to bridge seasonal gaps and purchase additional stock when you are at your busiest time of the year.

A line of credit can help you maintain good standing with suppliers and potentially increase your business credit score.

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