Inventory Valuation Challenges and Resolution Strategies
Introduction
In the realm of inventory management, businesses often encounter various challenges that can impact financial reporting and operational efficiency. And it is always better to learn from others’ mistakes than to experience these mistakes yourself.
In this article, we will explore some of the challenges faced by Multiple Amazon Aggregators among other businesses and the strategic steps that can be taken to address them. These steps, if implemented to the point, can help you identify points of improvement and maintain accurate records of your inventory value.
Let’s learn together from our experiences!
Frequently faced Challenges:
Most businesses encounter the challenge of needing to determine the historical value of their inventory over time.
1- Difficulty in Tracking Inventory Value:
When it comes to keeping tabs on the inventory value of a diverse brand portfolio, it often proves frustrating to accurately assess the worth of each inventory subset.
2- Tools Used for Inventory Management Have COGS Mismatches:
Businesses regularly grapple with inherent limitations in their inventory management tools, especially when the data is not synced regularly or entered in manually. it often results in discrepancies in the Product Dimensions and or Cost of Goods Sold (COGS) data .
3- Duplication of Efforts & Valuation Miscalculations Occur:
Valuation miscalculations are a common issue for businesses due to COGS disparities within inventory management tools. These inaccuracies can potentially negatively impact financial reporting. Finance and audit teams often find themselves having to dedicate extra time and effort to reconcile inventory values due to the challenges mentioned above.
4- Data Sourcing from Paper Resources and Lack of a Single Source of Accurate Information:
Many businesses face the obstacle of having to collect data from paper resources (Purchase Orders, Invoices…etc), which can be time-consuming and error-prone. Additionally, not having a single source of accurate information often poses challenges in maintaining data consistency and reliability.
What Steps Can be Taken:
To address these challenges and others, you need to be proactive and take certain actions in advance. Such as:
1- Historical Data Analysis:
Consider reviewing historical stock data and maintaining Monthly Inventory Value Reports. These reports should include COGS and stock levels for each month, allowing you to calculate values on a Brand Level.
2- SKU-Level COGS Tracking:
You can Create a file containing COGS for each SKU, this file should encompass all Landed COGS used to calculate inventory values monthly on an SKU level, enabling you to keep a granular record of COGS.
3- Handling COGS Variations:
When dealing with COGS changes compared to previous months, potentially due to different purchasing prices for newly ordered inventory, opt to use average COGS. This approach ensures both old and new batches are cumulatively valued based on the average landed COGS until the old COGS batches are completely sold off.
4- Segregation by Marketplace and Currency:
Further segregate COGS based on each SKU in all marketplaces (EU, UK, and US) and convert COGS into the appropriate currency (USD and EUR). This meticulous record-keeping will provide you a precise view of each SKU’s COGS and ultimately an accurate view of value of your inventory held.
By learning from and implementing these strategic steps, you can overcome frequently faced inventory valuation challenges and streamline your financial reporting processes. This will not only enhance your operational efficiency but also contribute to more accurate financial statements for your business.
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