The number of inventory average is an important indicator to help businesses effectively manage quality goods. The calculation of this indicator helps the business determine the amount of the average during the accounting period, ensure enough goods to meet customer demand. So specific inventory average what is and formulas how to calculate? Track the following article of Vietnam to be provided with information details.
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1. Inventory on average, what is?
Inventory average is an important indicator in the management of the inventory of the business, particularly in the manufacturing industry, retail and logistics. This index expresses the level of goods on average are in the inventory of the business in a given time period.
Inventory average is calculated based on the number of inventory beginning and end of a business, then divide that average to get the number of inventory at the average in the states.
2. Formula for calculating inventory average precision
How to calculate inventory on average, the general formula is used as follows:
Formula: inventory average = (inventory, beginning of the period + inventory end of period) / 2
Explanation:
- Inventory at beginning of year: This is the amount of goods that businesses have available in stock at the beginning of calculations (usually the first month, quarter, or year).
- Inventory end of period: the Amount of inventory at the time of the end states after the fluctuations in import, export, goods in the states.
- On average, a split between the amount of inventory the beginning and end will give you the number of inventory average – is the average amount of goods business holds in all states that.
For example:
Suppose company A has inventory the beginning of the period is 500 products, inventory, end of period is 700 products. How to calculate inventory average apply the formula above:
Inventory average = (500 + 700)/2 = 600
So, in the calculation of average inventory of the business is 600 products.
Business use formula for calculating the inventory average to measure the amount of inventory in a continuous manner throughout the accounting period, which in turn helps determine the amount of need to enter planning and inventory management in an effective way.
3. Why calculating inventory levels, on average, is needed in business management?
The calculation of inventory average plays an important role in many aspects of business management, from managing cash flow and demand forecast to assess business performance.
Cash flow management
Inventory directly affects the cash flow of the business. Knowing the amount of inventory average helps businesses know the number of goods need to buy more, as well as when to reduce the amount of inventory to release working capital.
If the inventory is too high, capital is “buried” in the warehouse, can not be used for other activities such as investment, marketing, or paid employees. Conversely, if inventory is too low, the business may encounter the situation of not enough goods to meet demand, resulting in lost revenue.
Good management of inventory average help business adjust the level of goods logical and reduce operating costs as the cost of warehousing, storage of goods, the opportunity cost.
Demand forecasting and production planning
Inventory levels average is an important indicator to forecast demand and plan production efficiency. Through keeping track of inventory levels, on average, businesses can predict the level of consumption in the future, from that plan import or manufacture at the right time. Helps avoid excess inventory or shortage of goods caused losses for the business.
Evaluate business performance
Inventory index average is also a useful tool to evaluate the operational efficiency of the business. A business can manage inventory better will respond quickly to market demands without having the status of goods in the backlog too much or not enough goods to sell. From there, business performance will be improved, at the same time help improve the experience of customers when goods timely.
When the inventory level average is optimal, reflecting the ability to operate the efficiency of the enterprise, reduce unnecessary costs and help improve profitability.
4.Factors directly affect inventory average
Speed consumption goods
Speed consumption is the most important factor affecting the level of inventory on average. Speed consumption goods as quickly, the amount of inventory will be constantly changing, from which the impact on inventory index average.
When the goods are consumed slowly, the amount of inventory will increase, towing costs of storage and preservation increase. Conversely, if the consumption rate is high, businesses need to plan to enter orders quickly in order to maintain the stability of the warehouse, avoid the inventory, the average fall in the level is too low, causing shortages.
Production cycle/supply
Production cycle and supply also directly affect the amount of inventory average of the business. Manufacturing enterprises need to plan the supply of raw materials in accordance with the production cycle to ensure uninterrupted operation. If the cycle supply lasts or not stable, businesses must reserve more material than that inventory levels increased. For the commercial business cycle, supply of goods from supplier also affects inventory levels, especially in high season or when needs change suddenly.
Policy inventory management
Policy, inventory management of each business also has a decisive role to inventory levels, on average. The business has a policy effective inventory management often have the ability to adjust the amount of inventory a more flexible way to optimize resources. On the contrary, if the business is no process, inventory management, clear, easily leads to a situation of excess or shortage of inventory, negatively affect the inventory index average.
5. How to improve the calculation of inventory levels, average
Using software inventory management
Warehouse management software is great not only help businesses track inventory accurately, but also supports the calculation of inventory on average, in an automatic way.
Software, LV-DX Accounting help business easy to control and calculate the storage medium through the features. The system provides detailed information about the process of import and export goods such as quote, order, receive, delivery, invoice maker helps to track the entire cycle in a transparent way. LV-DX Accounting also has the ability to control the shipment, track-term use, origin and age of inventory, to help optimize the management.
With easy to use interface and ability to integrate data, LV DX Accounting helps businesses can process optimization, inventory management without encountering the problem of input errors or discrepancy in the data.
Optimal process inventory
A way to improve the calculation of inventory average is optimized process inventory. Warehouse inventory periodically will help businesses get data inventory beginning and end properly, thereby improving the accuracy of the calculation, inventory average.
Business needs to make an inventory of goods according to specific schedule (month, quarter, year) in combination with the use of modern tools such as bar code, QR Code to minimize errors. The digitization process inventory will help reduce the time and effort in management, at the same time providing accurate information on the amount of current inventory.
Planning based on data
The planning based on the data inventory, consumption goods in the past will help businesses predict accurate future demand, from which adjust inventory levels accordingly.
Businesses can use tools to analyze data to track trends in consumption and the volatility of the inventory. This helps make the decision more accurate about when need import or adjust inventory levels to avoid the excess or deficiency.
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Calculate inventory average not only to help businesses grasp the situation of goods in warehouses, but also plays an important role in the optimization operation. By improving the calculation of inventory levels, on average, businesses can ensure inventory levels reasonable, from which optimize cost, enhance the ability to respond to market demands quickly and efficiently.
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