Financial Guide for SMEs - SME Corporation Malaysia

Financial Guide for SMEsManaging InventoryInventory management is about having the right level of inventory to satisfy theneeds of your customers and managing the inventory to identify excess or oldinventory. Of course, inventory has to be purchased, either from existing cashin the business or from borrowings, so it is important that the inventory levelsare managed so that they use minimum fi nancial resources as possible. Thisdoes not necessarily mean keeping low levels of inventory, but rather ensuringthat inventory is held for the shortest possible time, which means that it will beconverted into cash quickly (too little inventory can affect sales, so the key is tofi nd the appropriate level, which can change over time).However, maintaining inventory comes with a cost. Itis estimated that holding inventory can cost anythingbetween 10 to 30 percent of the value of the inventory.This includes storage, insurance, keeping accuratetracking records and proper controls to avoid theft.Effi cient inventory control involves three elements:• Inventory review;• Buying policy; and• Operational issues.HINTSetting up goodinventory controlprocedures willensure that cashis not tied upin holdingunnecessaryinventoryThe following checklist will help you to determine what measures for inventorycontrol you may need or can use to improve your existing procedures.Checklist for Managing Inventory1. Inventory ReviewActionDescriptionList all Determine the current level, what items are held and the valueinventory of inventory on hand.Reviewsalesof inventoryLook at the sales records to fi nd out which are the best sellingitems and which are slow moving. Do not forget to look atseasonal trends. A focus on the best selling items shouldincrease cash fl ow, if you manage your debtors well. Work outwhich items of inventory sold make the highest gross margin.This is important, as you may then be able to increase profi t byfocusing more energy on these sales.49Chapter 2-5 p22-65 Eng.indd 498/15/11 5:01:57 PM