Since all of these fees will factor into your final profit, businesses must know the landed cost. Some of these fees may change over time, so it’s normal for your landed costs to fluctuate slightly. Landed costs can either be calculated per item or per batch. This term is typically used for internationally shipped items. Landed cost refers to the total cost your business incurred to get new products into inventory. It ensures that the products that will expire the soonest are sold first. FEFO: “First expired, first out” is used on products with expiration dates.This strategy is vital for companies that want to ensure inventory doesn’t go bad. LIFO: LIFO means “last in, first out,” and states that the newest inventory is sold first.This is a great way to make sure your merchandise is up-to-date. FIFO: This term stands for “first in, first out,” and states that the oldest inventory is sold first.Here are three common batch tracking strategies: For instance, inventory batches are often items that came in on the same day.ĭoing this makes it easier to track the expiration dates and identify defective items. Batch trackingīatch tracking is a quality control system that businesses use to group similar sets of stock. For instance, you can calculate the value based on revenue or profitability.īefore you can track your inventory, you must correctly set up SKUs for each of your products. You get to decide what criteria determine which products are the most valuable. Category C is for small transactions that are less important to the company, and Category B products fall somewhere in the middle. Also referred to as ABC classification, this tool helps you identify and prioritize your inventory's most essential products.Ĭategory A refers to your most valuable products that contribute the most to the profitability of your business. If you manage inventory with hundreds of SKUs, then ABC analysis can make this process easier. The SKU may contain letters or numbers that specify it belongs in the toys section. If you decide to visit the toys section, each item has a SKU for its specific category. For instance, if you go to Target, the store is broken down into several different sections, like groceries, household items, clothing and toys. SKUs are usually broken down by category and the characteristics of the product. Before you can track your inventory, you must correctly set up SKUs for each of your products. Yearly stocktaking can be very disruptive to your business, so cycle counting can make this process more manageable.Ī SKU, or stock keeping unit, is a way to catalog and reference products in your inventory. Instead of conducting one big annual count, you break this down into several smaller sessions. How this process is conducted will vary significantly from business to business.Īnother form of stocktaking is cycle counting, which occurs more frequently. It’s an essential part of inventory management because it affects your ordering decisions, which is why it’s required as an annual company audit.
You may also need to verify your results versus what your inventory management system says. You identify all the merchandise, count it and record totals per item. Stocktaking is when you manually verify the quantity of inventory your business has on hand. Here are six inventory management terms that you’ll want to familiarize yourself with. Getty Images/FG Tradeįor product-based businesses, managing inventory levels is crucial to making your business run smoothly and keeping customers happy. Regardless of what kind of products you sell, keeping track of your inventory is an important part of maintaining a business.