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How to Measure Inventory

To measure inventory is an integral part of inventory management. This helps businessmen make wise decisions on production and costs.

Someone in any company must learn to measure inventory because this is a way of finding out how a product is doing in the market. Without this kind of activity and business practice, one will not be able to see how well the inventory is being managed, especially for products that are sold on consignment. Whenever inventory is analyzed or measured, what needs to be seen or captured in the data is the number of times that finished goods are sold. This may be done on a weekly, monthly, or annual basis.It is a given that if the inventory is not turned over, the products are not sold. These goods that are stocked in the shelves or warehouses are costing money to companies. Goods that are unsold are always equated to capital that is just lying around. It is not generating funds but it accumulates costs. Other than that, these goods may perish especially if they have short shelf lives. Although it is ideal to have zero inventory, it may be said that as long as the inventory is balanced, one is assured that the business is moving on and that there is a good cash flow if the goods are moving steadily from the merchandiser to the end user.To measure this, one must have data. Of course, it need not be said that the data should be accurate. To calculate this, the total annual sales is divided by the inventory value. This is normally done in an annual basis since it is a common business practice to see how it grows year in and year out. One must do this in order not to over produce. Also, if the inventory return is low, this means that the company must come up with initiatives to increase sales through marketing.Another way of seeing the effectiveness of inventory strategy is through inventory levels. One must note that there are three types of inventory. These should include the raw materials that are found in the company. Another is the work that is in progress. These are things that are yet to be converted into finished product. The last type of inventory is then actual finished goods ready for delivery or marketing.Raw materials are the parts that will be used to come up with a product. This means it includes everything from bolts to screws, etc. Once these materials are currently being assembled, these should be included in the second type of inventory, which is work in progress.  Lastly, the finished good is the final outcome of the process of putting the inputs together.When the level of inventory is calculated, one must take note that the production rate is an important mathematical formula that plays a significant role in inventory management. Production rate is the number units completed or assembled over a given period. To measure inventory accurately, this should only include completed products that are ready for shipment or sales. To calculate this, the total number of completed products should be divided by the specified timeframe like weeks, daysFeature Articles, or months.

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