Each month these forecasts are compared to actual sales and expenses. If sales are lower, or expenses higher than what was projected, management will usually take corrective action to ensure that the company remains profitable.
Budgets are good management tools.
Unfortunately, few distributors maintain budgets and projections for what is probably their largest asset, inventory. It is critical to the success of your inventory management system, and your business in general, to develop a budget for the value of stocked inventory maintained in each warehouse. But these optimal goals cannot be achieved overnight. And as we will see, it will probably take three months, after you begin an effective inventory management program, to start to see results. So, if the inventory of stocked products in your warehouse is currently turning three times annually, and your company initiated an effective inventory management program three months ago, you should try to achieve 3.1 turns next month, 3.2 turns the month after, etc.