Inventory management is a step in the supply chain where inventory and stock quantities are tracked as they move in and out of your store or warehouse. Inventory tracking and management systems are used to track the lifecycle of inventory and stock as it comes and goes out of your business. This is in-fact the basis of a well-functioning retail business. No business can function efficiently if it does not know how much inventory it has at any point in time.

Insufficient inventory means lost sales and costly, time-consuming back orders. Running out of raw materials or products that are crucial to your production process means increased operating costs, too. Your employees will be getting paid to sit around because there are no products to work with; and when the inventory finally comes in, they’ll be paid for working overtime to make up for lost production time. This of course costs the company all round.

When you don’t know how much inventory you have at hand at any point in time, you can’t make smart reorder decisions. You essentially have to go with whatever is available in a bid to speed up operations. The goal of inventory management systems is to know where your inventory is at any given time and how much of it you have in order to manage inventory levels correctly.

Without an accurate knowledge of your inventory, you can be tempted to order excess and then get stuck with too much inventory or an incorrect amount of product. The list of the problems is just endless.

Efficient inventory management processes are imperative to your success as a retailer of any kind — ecommerce, multi-channel, brick-and-mortar, omni-channel — if you want to seriously compete.

For this reason, there are inventory tracking systems that can help you keep an eagle eye on your inventory to let you know when to stock up and when to hold back. But among these many inventory tracking systems in the market, there are some that show you the cost and gross profit in each item. We are going to explore some of these.

What Kind of Inventory Tracking System Shows the Cost and Gross Profit Margin in Each Item?

Inventory is the biggest asset to your company, so in order to save money and make money, you need to protect that asset and nurture it in the right direction. Without implementing inventory management techniques, you’ll never get ahead. For that reason, here are inventory tracking systems that show you cost and gross profit margin in each menu.

  1. The gross profit method

The gross profit method is an inventory tracking system that shows the cost and gross profit margin on each menu. The gross profit method allows a company to see how much money they would profit from their inventory on hand after they subtract the cost of good solve (COGS). Businesses can choose to run this tracking system daily, weekly, monthly or yearly depending on their business and accounting/book keeping needs. Each type of business has periods and those periods are what they typically use to stay on track with their accounting.

The gross profit method is is also used to estimate the amount of ending inventory. It can be used to estimate each month’s ending inventory or it might be used as part of a calculation to determine the approximate amount of inventory that has been lost due to theft, fire, or other reasons.

The gross profit method of estimating ending inventory assumes that the gross profit percentage or the gross margin ratio is known. For example, if a company purchases goods for $80 and sells them for $100, its gross profit is $20. This results in a gross profit percentage or gross margin ratio of 20% of the selling price. Therefore, when the company has sales of $50,000 it is assumed that its cost of those goods will be $40,000 (80% of $50,000 in sales; or sales of $50,000 minus $10,000 of gross profit).

Such estimates are often used by insurance companies to establish the amount that has been lost by an insured party. Very simply, a company’s historical normal gross profit rate (i.e., gross profit as a percentage of sales) would be used to estimate the amount of gross profit and cost of sales. Once these data are known, it is relatively simple to project the lost inventory.

  1. Dollar-Control Systems

Dollar control systems are systems used in inventory management that reveals the cost and gross profit margin on individual inventory items.

Dollar-control systems show the cost and gross profit margin on individual inventory items. A basic method of dollar control begins at the cash register, with sales receipts listing the product, quantity sold, and price. You can compare sales receipts with delivery receipts to determine your gross profit margin on a given item. You can also use software programs to track inventory by type, cost, volume, and profit.

Retailers make physical inventory checks daily, weekly, or as often as is practical—once a year at the minimum. Sometimes an owner will assign each employee responsibility for keeping track of a group of items or, if the store is large enough, hire stock personnel to organize and count stock.

Conclusion

An inventory management system focuses on one supply chain process. They often come with the ability to integrate with other software systems – point of sale, channel management, shipping – thus enabling you to easily build a personalized integration stack to the needs of your unique business.

Ajaero Tony Martins