How to Determine Correct Inventory Quantities

Inventory is the items that are on hand that are owned by a company and that are ready to be sold to the customers.

For a store, inventory needs just one classification “merchandise inventory”, which can describe the items that make up the broader inventory.

If you are dealing with a manufacturing company, then inventory will need to be broken down into narrower categories.

This includes items such as “raw materials”, “work in progress” and “finished goods”.

It is important to know how much the business has in each category, and how they translate.

For example, one batch of raw materials may create ten batches of finished goods.

However, the manufacturing process could take a long period of time.

Having a strong knowledge of inventory “in progress” and how long that takes can be useful for monitoring the supply chain.

There are periodic inventory systems, which monitor the inventory as a snapshot in time. There are also ‘perpetual’ inventory systems.

These will look at inventory as an ongoing thing and will consider things such as wasted materials or material lost to theft.

Taking an Inventory

Taking a physical inventory of goods will require measuring the inventory, either through counting or via weight/volume depending on the good at hand.

Once the goods have been counted, then the next thing to consider is who owns the goods.

Are some goods ‘sale or return’ and therefore not owned by the company? This is often known as consigned goods.

Are there goods that are still ‘in transit’, owned by the company but not actually available for sale right now?

Are there goods owned by the company that is being sold at other venues, but the company still holds the title for?

All of these things must be considered to arrive at an accurate inventory count.

Monitoring Your Inventory

Having a good knowledge of your inventory is important for accounting reasons and it is also important to support efficient production lines and stock control.

Inventory awareness can alert staff security of possible theft and also help to improve efficiency when it comes to ordering goods for seasonal promotions.

Companies may be able to reduce overheads and stock a wider range of goods by keeping smaller inventories.

Alternatively, they can help to improve customer goodwill by ordering a greater quantity of goods that tend to sell out quickly.

Inventory Value

Determining the value of your inventory may be complicated if the inventory has been purchased from multiple suppliers, or at different times and for different prices.

In fast-moving industries such as the technology industry, this can be particularly problematic.  

It is important that companies keep track of which items were purchased at different prices, and that the sale price tracks the value in an appropriate fashion.

Inventory management software can help with a lot of these issues and can inform best practices.

This includes helping companies to decide whether to use “last in first out”, “first in first out” or “average” pricing to select their own pricing.

Each method can produce vastly different (and not always profitable) results.

If you need help managing your inventory, then look no further than ASP Microcomputers.

We are the market leader when it comes to the development of customised and packaged solutions.

This includes Inventory Management, Portable Barcode Readers, Supply Chain Management, Time and Attendance and Asset Tracking to name but a few.

Please call us today on 03 9578 7600 or 1800 061 642 or contact us through our website on