By: Michael Kinan
Inventory Management
Inventory management is the process of organizing and managing inventory across the supply chain. The goal of inventory management is to reduce the cost of carrying inventory while maintaining consistent inventory levels and providing products to customers as quickly as possible. Inventory management is the heart of successful business operations.
What is Inventory Management?
Inventory management is the process of effectively monitoring and controlling 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 one company to another, and there are different types to consider.
Retail Inventory Management
Retail inventory management refers to managing the inventory intended for sale to customers. As a retailer, your primary goal is to ensure that you have enough inventory to meet customer demand and needs. However, storing inventory can be costly, so you must also avoid overstocking products in your warehouse.
Multi-location Inventory Management
Managing inventory across multiple locations adds an additional layer of complexity because you must manage inventory across several stores, warehouses, or sales channels. This type of inventory management goes beyond an overall view of your inventory and requires site-level management to ensure sufficient stock is available wherever you sell.
Benefits of Inventory Management
Whether you own a small business or use an Enterprise Resource Planning (ERP) system, inventory management helps achieve several important outcomes:
- Avoiding spoilage: If you sell a product with an expiration date, such as coffee or tea, there is a genuine risk that it may spoil if not sold in time. Effective inventory management helps avoid unnecessary spoilage and improves inventory control.
- Avoiding dead stock: Dead stock refers to 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 some way. By adopting a prudent strategy, you can address this costly inventory mistake.
- Reducing storage costs: Storing products is a variable cost, meaning it changes based on the amount of product you keep in stock. When you store too much product at once or end up with hard-to-sell items, your storage costs will increase. Avoiding this will save you money.
- Improving cash flow: Inventory directly affects sales (by determining how much you can sell) and expenses (by determining what you need to purchase). Both of these elements significantly impact the amount of cash you have on hand. Improving inventory management leads to better cash flow management.
- Enhancing order fulfillment: Good inventory management can improve order fulfillment in meaningful ways. You can use tactics like inventory distribution, which involves having stock at 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
While effective inventory management offers many benefits, certain challenges must be overcome to achieve efficiency.
Inventory Management Systems
An Inventory Management System (IMS) is software (usually a computer program) that monitors and organizes all the items involved in inventory management. This includes tracking orders from suppliers to customers. Continuous inventory system
Inventory Management Techniques
No matter what system you use, the following can help you improve inventory management and cash flow:
Future
Inventory Management
Technology continues to grow and evolve at an impressive pace, and it has many new and emerging applications in the field of inventory management.
Controlling 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, the company has a better chance of achieving profitability and surviving.
Frequently Asked Questions about Inventory Management
What is the meaning of inventory management?
What are the four types of inventory?
What is an example of inventory management?
What is the main purpose of inventory management?
What are the five stages of the inventory management process?
What is the best way to manage inventory?
What is supplier-managed inventory?
What is the first step in inventory management?
What is EOQ in inventory management?
Source: https://www.shopify.com/ca/retail/inventory-management
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