Dig Deep in Market
Firms and other business institutions are not big fans of excess inventory. They go through immense pressure to get rid of those products. Obsolete inventory has some positive sides as well. Those can be the biggest asset of your company, if you know how to handle. An inventory defines a company and its strength. Calculation of expenditure, market strategy and last moment decision etc are the key factors. Analyzing customer’s expectation and costs of inventory should be kept in mind. The cost may come at the expense of something big. However, you will still have to find a way to solve the issue.
Obsolete inventory does not promise any good thing. If you get something better out of it, that is your plus point. Most companies evaluate productivity by considering different options. For example, inventory return can be calculated to see the financial status. Based on this return, gross margin returns on factors like investment, dimensions are found. Everything is done on cost by cost basis. The analysis cannot be completed leaving any key factor out of the list.
The real cost of any inventory does not remain steady. It can go far beyond the margin. The expense of management can be bigger than ever. But a company has its own right to do whatever it takes to get rid of excess products. The full cost of any product is buried within certain factors. Gross margin line, as mentioned earlier, works as the boundary. If the cost is above the boundary, the management has to do something to lower it. On the other hand, if the cost is too low, a company has a good chance to take the risk. It is recommended to remain calm during this period. The extra savings can turn out to be good for the future.
What About the Correctness?
It is not always possible for a company to predict the accuracy of any management cost. The cost may float between the sellers and the buyers. Unless an agreement is reached, there is no chance of sealing the deal. Both parties will like to have some profits. This is how the business is operated. Importers find it hard to handle too often. Sometimes they are required to carry a huge LC cost to formally go with the process. The shipment cost is very tactical. This is one sort of thing every business person is afraid of. A company can spend more money on its inventory. The real puzzle is whether the money is properly spent on a particular sector or not. Miscalculation will lead to a big financial loss. Therefore, the investment cost must be measured keeping some backup money.
Under or Over Performance?
Opportunity cost is such a big deal. A business should keep a good track on this. It is an easy job to apply the opportunity cost of any under performing inventory. The question is what about the others? That is not the real challenge. Other inventories are getting offloaded and filled. Excess inventory is keeping the extra space for months after months. Some products have expiry dates. Therefore, only a company can imagine the disadvantage of it. You must keep some mutual funds to splash the cash when needed.