* Companies usually handle a large number of products. Units of products move rapidly as new orders are received, products are returned, products are drop-shipped, out of stock products are backordered or products are earmarked for a delayed shipment. The sheer volume of items makes the task of monitoring inventory complicated.
* In order to minimize cash tied up in inventory and to reduce inventory handling costs, an organization must know its current inventory count accurately at all times. This information is essential in knowing when to re-order products that are out of stock or are about to go out of stock. There are significant costs associated with carrying too much inventory such as cash tied up in slow moving inventory, inventory storage and handling costs, spoilage and obsolescence. On the other hand, carrying too few units could result in stock-outs and loss of sales or production stalls. The ultimate goal is not to order too many or too few goods. The more accurate the inventory count, the better an organization is in a position to order an Economic Order Quantity (EOQ) that minimizes inventory costs and helps negotiate best price discounts.
* Cost of goods sold is the largest expense for businesses that deal with tangible products. Inventory control must track the number of units and the monetary value of the inventory. Companies need an accurate cost of goods sold in order to calculate their profit margins per product or across products.
* Companies need to safeguard their inventory against pilferage, outright theft and loss. A process needs to be in place that keeps track of inventory and helps ensure the physical count matches product count recorded in company books. Sound inventory control is an excellent deterrent against pilferage.
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