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Risk management and inventory control

In any size operation when it comes to warehouse products, the finance department must be weary of rising warehouse labor costs and owning excessive inventory. An inventory control system in its simplest form creates efficiencies in receiving, storing, collecting, and shipping goods. Enforces cost-saving workflows at the labor site through specially designed logistics software. Using wireless technology and rugged scanning devices, barcodes on both the product and the slot locations are scanned to enforce an efficient storage process. Modern warehouse management software can provide a new level of product tracking and validation that becomes essential in managing inventory.

From a risk management perspective, inventory control solutions can help provide the kind of work efficiency and audit trail that provide the CFO with key information during reporting periods. A barcode-based warehouse management system can provide a sophisticated level of detail that is important when finance departments seek to report inventory assets as a dollar value on the balance sheet.

Having tight controls over warehouse inventory is important because excess cash will be spent on warehouse inventory that is not delivered, shipped, or sold. These scenarios can lower overall opportunity costs for a company looking to invest its money wisely in other investments (not just inventory) and gain a positive net present value for alternative proposals.

Depending on your industry, most systems allow you to track expiration dates, reorder points, and provide analysis on which stock items are moving the most and generating the highest returns. There is a general rule of thumb that 80% of sales or profit comes from 20% of inventory. This type of information can be easily calculated using a warehouse management system. Another important result of having a system that controls your inventory is having a snapshot of the inventory with an accuracy of 99.9 percent; This means that the dollar value of inventory assets is also very accurate. This high degree of precision is achieved through a continuous barcode validation process as material handlers pick and pack products. The usual labor-intensive cycle counting process is automated by the warehouse management system as it continually updates product information in the warehouse, from what is collected to what is stored in a slot or Location. Full inventory cycle counts, which can be labor intensive and take days to complete, also become redundant. Confidence in inventory accuracy eliminates the need to schedule a large annual inventory count. Finally, with a software interface, this data can update the host’s ERP (such as SAP, Infor, Sage, Navision, etc.) and provide visibility across the enterprise. Upgrading the host system will improve the efficiency of real-time transactions and improve business processes that are based on accurate and timely inventory data.

You can only begin to analyze inventory numbers and movements effectively with an inventory control system. Accuracy rates in warehouses without any automatic tracking can be as low as 70%. Automation can take product counting accuracy to levels greater than 99.8%.

Inventory control should be of special interest to companies that are growing rapidly and have a much more critical view of cash flow. During bursts in production, there is a tendency to overstock and this immobilizes cash in inventory. Inventory positions must be carefully examined in any cash flow analysis. Even a low-cost, entry-level warehouse management system can begin to eliminate the risk of a business’s exposure to excessive inventory and labor costs. It’s a fact that most small business owners don’t want a glut of their business cash in storage.

Another potential side benefit can be a reduction in business insurance if excess inventory can be eliminated and events such as dead inventory or expired inventory can be managed. Inventory control systems can also help reduce damage because items are properly located and stored in well-marked or designated warehouse areas. The occurrence of theft can also be reduced if staff realize that there is a strict process in place to monitor the whereabouts of inventory and that missing items can be quickly detected.

In short, inventory is subject to risk exposures of various kinds and itself has a cash value that must be monitored like any other corporate asset. An inventory control system can help mitigate this risk and provide greater overall certainty to the business.

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