Companies in a product-oriented business usually struggle to manage inventory at optimum levels. There’s a constant tug-of-war going on between the need to have sufficient product to fulfill demand, and the desire to avoid the very costly pitfalls associated with overstocking.
This issue is often tougher for small business owners, trying to manage inventory without senior management expertise and sophisticated tools at their disposal. Additionally, without professional purchasing personnel, a business owner is more prone to the pitfalls of “deals” – buy more when the price is good, without relating that to the question of how long the “more” will sit on the shelf, or how much slow-moving or dead stock actually costs.
To help with this issue, here are 3 really useful inventory management reports that can help the small business owner in making better decisions about inventory levels, what to purchase, and more particularly what to get rid of.
1. Inventory Ranking Report
This type of report ranks your products in descending order by gross margin generated over the past year (or other appropriate period), and compares the profitability with the holding cost. It’s really useful to see which products are occupying more space in your warehouse and more value on your balance sheet than is justified by their contribution to profits. While you have to factor in other criteria in deciding on products to cut or reduce, this at least gives you an objective starting point for your evaluation.
2. Inventory “Hits” Report
The word “hits” brings back memories of Top 40 charts to this old codger, but in this case we’re not talking music. The word “hits” here means the number of times over the reporting period that the item has appeared on an invoice, and this is again compared with the holding value and costs, to identify products that appear very infrequently while constituting a significant chunk of inventory on hand. Ideally this should be used in conjunction with the ranking report.
3. Daily Average Sales Reports
These type of reports will show average daily sales (in units) over different periods, for example, last month, last quarter and last year, usually side by side. This helps to uncover trends. A common flaw in some software is that these reports only show items that have sales in the periods in question – ideally we should see all items that have either been sold, or that remain on hand, and their current inventory levels and value. This can help identify products where reorder levels and purchasing policies should be reviewed.
Hopefully your Inventory accounting software will support this type of reporting, even if via 3rd party reporting tools. To learn more about other reports beneficial to small wholesale and distribution businesses, download our free guide.