Inventory Management: Everything You Need to Know (2023)

Inventory management is the process of organizing and managing inventory across the supply chain. The goal of inventory management is to minimize the cost of holding inventory while maintaining consistent inventory levels and providing products to customers as quickly as possible. Inventory management is the heart of business success in the retail sector.

What is Inventory Management?

Inventory management is the process of effectively controlling and overseeing the flow of goods within a company. It involves tracking inventory levels, monitoring inventory movement, and optimizing replenishment to ensure sufficient inventory availability, reduce costs, prevent stockouts, and facilitate operations in the supply chain.

Types of Inventory Management

Inventory management varies from company to company, and there are different types to consider.

Inventory Management in Retail

Inventory management for retailers involves managing the inventory that they intend to sell to customers. As a retailer, the main goal is to ensure that there is enough inventory available to meet customer demands and needs. However, storing inventory is costly, so it is important to avoid holding large quantities of inventory in the warehouse.

Benefits of Inventory Management

Whether you run a small business or use an Enterprise Resource Planning (ERP) system, inventory management helps achieve several important things:

1. Avoid spoilage: If you sell a product that has an expiration date, such as coffee or tea, there is a real chance it can spoil if not sold in time. Effective inventory management helps avoid unnecessary spoilage and improves inventory control.
2. Avoid dead stock: Dead stock is inventory that can no longer be sold – not because it has expired, but because it has gone out of style or has become irrelevant in any way. By following a precise strategy, you can manage this costly inventory mistake.
3. Reduce storage costs: Storing products is a variable cost, meaning it changes based on the quantity of product you store. When you store a large quantity of product at once, or end up with a hard-to-sell product, your storage costs will increase. Avoiding this can save you money.
4. Improve cash flow: Inventory directly impacts sales (by determining how much you can sell) and expenses (by determining what you need to purchase). Both of these factors significantly affect the amount of cash you have on hand. Good inventory management leads to improved cash flow management.
5. Enhance order fulfillment: Good inventory management can help improve order fulfillment in useful ways. You can use tactics like inventory distribution, which involves having inventory in multiple distribution centers to ensure your products are close to your customers. This speeds up delivery times while reducing shipping costs – both of which help keep customers satisfied.

Challenges of Inventory Management

Despite the many benefits of effective inventory management, there are some challenges that must be overcome to achieve efficiency.

Inventory Management Systems

An Inventory Management System (IMS) is the software (typically software programs) that monitors and organizes all items involved in inventory management. This includes tracking orders from suppliers to customers. Continuous inventory system.

Inventory Management Techniques

Regardless of the system you use, the following can improve inventory management and cash flow:

Accurate Forecasting

A large part of good inventory management relies on accurate demand forecasting. This is extremely challenging. There are many variables involved, and you won’t know for sure what will happen, but you can try to get close to accuracy.

Last In First Out (LIFO) Method

The Last In First Out (LIFO) method of inventory management assumes that the products you purchased most recently are the first to be sold. It assumes that the last ones purchased are the first to be sold. It is the exact opposite of FIFO.

Storage

Real-Time

Just-in-time inventory management, or JIT, is for those who can take risks, although effective inventory management significantly reduces many of those risks. With JIT, you maintain the lowest possible inventory levels to meet demand and restock before the product runs out.

Inventory Storage and Management on Shopify

Every business should strive to eliminate as much human error as possible from inventory management, which means leveraging inventory management software. If you’re running your business on Shopify, inventory management is already built-in.

Retail Inventory Management Tips

Whether you’re running a new company or opening a new retail location, keep these tips in mind:

The Future of Inventory Management

Technology continues to grow and evolve at an astonishing pace, with new and emerging applications for inventory management. RFID

Control Your Inventory Management

Remember that with the right inventory management system, you can help reduce carrying costs, improve profits, analyze sales patterns and forecast future sales, and prepare for surprises. With proper inventory management, a company has a better chance of profitability and survival.

Frequently Asked Questions About Inventory Management

1. What does inventory management mean?
2. What are the four types of inventory?
3. What is an example of inventory management?
4. What is the primary purpose of inventory management?
5. What are the five stages of the inventory management process?
6. What is the best way to manage inventory?
7. What is vendor-managed inventory?
8. What is the first step in inventory management?
9. What is EOQ in inventory management?

Source: https://www.shopify.com/retail/inventory-management?itcat=plus&itterm=2023-commerce-trends-report