Inventory is the lifeblood of a distribution company. It requires real-time management and valuation. At the same time, companies have to maintain a balance between projected future demand and availability. Properly managing inventory can be rather complicated. Too much inventory can lead to high carrying costs, potential spoilage, and reduced returns on investment. Not enough, or an improper mix of product, and a business can miss out on valuable sales opportunities. Furthermore, an improper valuation of inventory can lead to poor decision making and misconstrued profits.
Food products are perishable and subject to expiration, so they necessitate additional compliance labelling, testing, and tracking. Food service distributors must also balance a high number of stock keeping units (SKUs) that are occasionally modified and specific to individual customers. Certain industries (such as seafood or meats), deal with balancing the logistics of both imported and local products which can lead to a disjointed and complex supply chain. Inventory levels are further driven by seasonality and changing customer tastes or preferences, which can be difficult to predict. Lastly, the recent political climate has called for incorporating higher tariffs into pricing projections across multiple food industries, most notably seafood, pork, and soy.
Distributors should be sure to invest in a good automated system that can properly allocate costs, track usage and shelf life, and provide pertinent, real-time reporting for management. Inventory metrics such as turnover, usage, and monthly variance should be tracked and understood for inventory in total, and by product line, location, and SKU. Inventory should be managed using historical system data to create accurate and valuable forecasting. Beyond the technology and systems, distributors need to retain the right employees who have the industry experience and historical knowledge of the products, as well as the ability to identify and implement process improvements. Finally, distributors need to ensure that warehouses are properly set up to reduce warehouse transfers and other inefficiencies.
Making these and other strategic inventory changes will provide better management of available working capital, which in turn reduces interest and other carrying costs. Understanding and properly allocating indirect costs, beyond purchasing, commissions, and freight, will provide the true cost of inventory sales and lead to improved financial reporting and projections. Working with a well-established accounting and advisory firm, with industry-specific experience, can help to get your inventory in order and maximize your profitability. Look for a well-established firm with a variety of business and financial service offerings and a team that has experience working with other food distributors.