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Simple Guide to Inventory Analysis [+Bonus]

 

Do you want to make the best of your inventory database? If so, a precise understanding of how to analyze inventories is crucial. Besides instituting a good warehouse layout and enhancing return on investment strategies, inventory analysis guarantees dozens of benefits, including:

  • Decreasing the time needed to obtain sellable items
  • Enactment of a suitable inventory approval system
  • Excellent product cataloguing and thus improved budget control
  • Appropriate management of inactive inventory items
  • Enriched application of the business’s investment
  • Improved inventory cash flow
  • Seamless identification of upcoming inventory prospects/ losses

Having hands-on experience with all the dynamics of inventory analysis will greatly improve the operation of your business.

 

 

Part 1
What Is Inventory Analysis?

Inventory analysis is an intricate stock management technique that applies a number of metrics to adjust inventory levels. This process is integrated to monitor the number of products in your warehouse, thus avoiding under- or overstocking.

By optimizing your stock levels, inventory analysis procedures monitor and regulate your entire production line with respect to the current market demands, thus keeping your inventory cash flow as fluid as possible.

Frequently analyzing your stock levels helps you understand which product will best sell at what time, thus enabling you to determine which items to restock and how many. This greatly reduces overstocking and frees up storage space.

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Part 2
Metrics of Inventory Analysis

The main purpose of inventory analysis is to evaluate the performance of your stock and provide actionable strategies to optimize your venture’s assets.

This incredible technique employs information from metrics including:

  • Inventory Turnover
  • Inventory Stock-Outs
  • Customer Service Levels

Contextualizing this inventory analysis indicator may be challenging, especially for new entrepreneurs. Here is a brief description of each metric.

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  1. Inventory Turnover

    Inventory turnover is an essential inventory analysis metric that measures your restocking frequency within a given time period. This indicator sheds light into your purchasing trends, enabling you to evaluate the specific number of items ordered.
    With a comprehension of the exact number of items sold and the category to which each item belongs, inventory turnover computation helps you evaluate your stock patterns, giving you critical insight regarding the competitiveness of your products in the market.

  2. Inventory Stock-Outs

    Inventory stock-outs are another key inventory analysis metric that evaluates inadequacies of your venture regarding the number of scenarios when a client ordered an item that was unavailable.

  3. Client Service Level

    This technique calculates the capability of your venture to meet orders with the available stock.

 

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Part 3
Detailed Guide to Analyzing a Company’s Inventory

With the above information, analyzing your company’s inventory should be easy. However, manipulating your inventory database so you can seamlessly integrate the metrics of inventory analysis requires measuring various aspects of your venture.

Inventory analysis involves evaluating the market performance of your venture’s products. This incredible procedure performs a ratio analysis of your products and reviews your financial statements. Here are some of the most commonly evaluated facets.

  1. Rate of Sales

    This concept provides a precise time taken for a product to sell out since the day of purchase. Professionally known as inventory outstanding ratio, this essential aspect helps you understand your sales rate, thus enhancing the process of restocking. Additionally, comprehending the retaining culture of your venture allows you to compare the competitiveness of specific products, thus reducing cases of overstocking.

     

    How to calculate and interpret:
    Divide the total number of items ordered by the purchase price. Typically, rate of sales evaluations are conducted on a monthly basis. In case of an increase, your sales efficiency is off, and your venture is having difficulty clearing inventory.

  2. Inventory Turnover

    Inventory turnover is a measure of your restocking frequency.

     

    How to calculate and interpret:
    To determine your inventory turnover, divide the price of the commodities by the average inventory. If you notice an increasing trend, your venture is efficiently clearing its inventory. A high turnover shows that your products are selling out faster and you should consider restocking more frequently.

  3. Inventory Stock-outs

    This inventory analysis metric helps you evaluate the diversity of your warehouse and the reliability of your supply chain in terms of meeting customer demands.

     

    How to calculate and interpret:
    Product stock-out is one of the simplest inventory analysis metrics, especially when it comes to making calculations. Simply add the number of times (within an accounting period) clients ordered items that were unavailable. If you have limited warehousing space, consider evaluating the time taken to make the specific product available. If this value increases, your venture is suffering serious supply chain problems.

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Part 4
Common Methods Used to Analyze Inventory

Inventory analysis is an incredibly intricate process, and identifying the ideal inventory analysis technique for your unique supply chain may prove even more challenging. To make it easier, here is a comprehensive outline of various inventory analysis methods.

1. ABC Analysis

Standing for Always Better Control, ABC inventory analysis is a powerful practice that puts your products into distinct classes. With this technique, you can regulate your products with respect to their value. ABC inventory analysis categorizes your items into three main groups:

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  • Class AComprised of exceptionally expensive items and usually given the greatest attention when it comes to regulation.
  • Class BIncludes comparatively less valued products and comes second after class A items when it comes to regulation.
  • Class CComprised of the least valued items in your venture. Although registering the highest count, class C products are guaranteed the least control attention.

2. Vital Essential and Desirable Method

Commonly referred to as VED analysis, this technique of inventory control focuses on prioritizing the most essential and expensive production items.

3. JIT analysis

The JIT (just in time) technique emphasizes ensuring that your venture holds only the necessary number of items needed for the manufacturing process. This incredible analysis method guarantees an optimized inventory, thus helping you save space without running out of orders.

Other Methods of Inventory Analysis Include:

  • MPR Technique (Material Requirement Planning)
  • EOQ Technique (Economic Order Quantity)
  • Minimum Safety Stock

 

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Part 5
Best Practices When Conducting Inventory Analysis

The above tips will ensure that your inventory analysis experience is exceptional. However, if you want to improve your stock management capabilities, consider the following inventory analysis practices.

  • Ensure comprehensiveness when tracking inventories
  • Consider automatic inventory data entry techniques rather than manually entering data
  • Keep your database centralized and organized to improve data access
  • Incorporate techniques that perfectly fit your unique business scenario
  • Effective forecasting of market trend for exceptional inventory analysis

Conclusion

Whether you are running a large or small business venture, efficiently monitoring the flow of your products is important. However, this is almost impossible without a precise understanding of inventory analysis.

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inventory information management

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asset management

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it asset management

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equipment control

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equipment log

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equipment rental log equipment checkout

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product movement log

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general log

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