Inventory Management 

 

Introduction 

Inventory refers to the goods or raw materials required to produce finished goods or to sell to customers to gain profit. It is mainly categorized in three different ways, raw materials, work-in-progress, and finished goods.

Inventory management is all about tracking the inventory from manufacturers to warehouses. In short, planning, organizing, handling and storing some required amount of inventory with the right amount of cost to meet the consumer’s demand. Here the main objective is to have the right products in the right place at the right time.

Inventory also includes certain maintenance costs, so how to reduce that cost and also how to beat customers' demand is all that inventory management does.

Managing inventory mostly involves two costs i.e. ordering cost and carrying cost. Placing certain order, shipping, insurance, inspection, accounting all this comes under ordering cost and other than that carrying cost include cost of holding inventory in warehouse, insurance of inventory, space or size covered, damage if caused. 

Importance of Inventory Management 

1. To maintain optimum inventory level to maximize profit and to reduce the cost

2. To meet seasonal demand of the products

3. To plan when to purchase and where to purchase

4. To avoid over stock or deadstock and under stock of inventory

5. To run production process efficiently

Benefits of Inventory Management

Two main and important benefits of inventory management are that it ensures order fulfilment and also raises profit.

1. Increase Profit

Understanding and keeping track of inventory helps you to see how much of and where you need stock and in what quantity. It saves money and all of this decrease’s costs tied up in inventory which eventually will increase profit of your organization.

2. Improves Cash flow

With proper inventory management, you spend money on inventory that sells, so cash is always moving through the business.

3. Customers satisfaction 

With proper Inventory management, customer demand can be fulfilled without waiting periods which will develop loyal customers.

Challenges faced in Inventory Management

The main challenges faced in inventory management observed is having too much inventory and not being able to sell inventory, which results in deadstock inventory whereas, on other hand if there’s out-stock of inventory it’s difficult to fulfil customer demand.

1. Finding out accurate stock detail

Managing inventory stock is necessary to find out accurate stock details when there’s need to refill, what things are required and in what quantity or which stock moves well.

2. Poor processes

Manual or traditional methods of working can make processes slow 

3. Being updated

Customer demand and taste needs change constantly. If your system is not updated and can’t track the trends, it will be difficult to grab customers and also you can’t track what is customer’s preferences.

4. Proper use of warehouse

Laziness of staff, wasting time in locating products, managing proper inventory can help eliminate this challenge.

Effective Inventory Management 

Inventory tracking

Keep track, know exactly where inventory is across supply chain

Order management

Check orders and needs, track order, pricing, and manage return

Transfer Management

Move inventory were it is needed or at its most valuable place

Purchasing

Create and manage purchase order

Shipping

Manage shipping of product, and automate shipping to avoid errors

Inventory Management Process

For a company, inventory management sets up the processes that result in closing a deal or creating a buying deal. Similar to the associate engine, the method in a company principally runs behind the scenes. It always involves tasks like order management, storage, packaging, and cargo. After you receive an associate order from your client, order management takes care of getting ready a sales order and invoice. When the order is confirmed, the warehouse management method can determine the situation of the stock and send it to your store. Then, similar to the wheels, the packaging and cargo method sets the item in motion. It ensures that the item gets packed, dispatched, and delivered to the client, on time and safely. Inventory management permits every part during this method to perform its step and contribute to reaching the required finish.

Inventory Management Techniques and Terms

Some inventory management techniques use formulas and analysis to set up stock. Others place confidence in procedures. All ways aim to boost accuracy. The techniques an organization uses depend upon its wants and stock.

Find out that technique works best for your business by reading the guide to inventory management techniques. Here’s a outline of them:

ABC Analysis:

This technique works by distinctive the foremost and least standard sorts of stock.

Batch Tracking:

This technique teams similar things to trace expiration dates and trace defective things.

Bulk Shipments:

This technique considers unpacked materials that suppliers load directly into ships or trucks. It involves shopping for, storing and shipping inventory in bulk.

Consignment:

When active consignment inventory management, your business won’t pay its provider till a given product is sold-out. That provider conjointly retains possession of the inventory till your company sells it.

Cross-Docking:

Using this technique, you’ll unload things directly from a provider truck to the van. Storage is actually eliminated.

Demand Forecasting:

This form of prophetical analytics helps predict client demand.

Dropshipping:

In the process of dropshipping, the provider ships things directly from its warehouse to the client.

Economic Order amount (EOQ):

This formula shows precisely what quantity inventory an organization ought to order to cut back holding and different prices.

FIFO and LIFO:

First in, 1st out (FIFO) means that you progress the oldest stock 1st. Last in, 1st out (LIFO) considers that costs invariably rise, that the most recently-purchased inventory is that the costliest and therefore sold-out 1st.

Just-In-Time Inventory (JIT):

Companies use this technique in an attempt to take care of very cheap stock levels attainable before a refill.

Lean Manufacturing:

This methodology focuses on removing waste or any item that doesn't give price to the client from the producing system.

Materials needs designing (MRP):

This system handles designing, programming and internal control for producing.

Minimum Order Quantity:

A company that depends on minimum order amount can order minimum amounts of inventory from wholesalers in every order to stay prices low.

Reorder purpose Formula:

Businesses use this formula to seek out the minimum quantity of stock they ought to have before rearrangement, then manage their inventory consequently.

Perpetual Inventory Management:

This technique entails recording stock sales and usage in a period of time. Browse “The Definitive Guide to Perpetual Inventory” to be told a lot of concerning this follow.

Safety Stock:

An inventory management attribute that prioritizes safety stock can guarantee there’s invariably further stock put aside just in case the corporation can’t make full use of those things.

Six Sigma:

This is an empiric technique for removing waste from businesses because it relates to inventory.

Lean Six Sigma:

This technique combines lean management and 6 alphabetic character practices to get rid of waste and lift potency.

The Future of inventory management

Globalization, technology and sceptered shoppers are dynamic in the approach businesses manage inventory. Chain operators can use technologies that offer vital insights into how chain performance is often improved. They’ll anticipate anomalies in provision prices and performance before they occur and have insights into wherever automation will deliver vital scale blessings.

In the future, these technologies can still rework inventory management:

Artificial intelligence

Intelligent, self-correcting AI can create inventory observation additional corrections and scale back material waste.

Internet of Things

Data from IoT sensors can offer insight into inventory location and standing.

Blockchain

Disparate parties are connected through a unified and immutable record of all transactions.

Intelligent order management

Supply chains can master inventory visibility with improved demand statements and automation.

Quantum computing

Unprecedented machine power can solve antecedently insolvable issues.

What area unit the Objectives of Inventory Management?

One objective of inventory management is to stay in enough stock to satisfy customers. Another is to take a position as very little as attainable available whereas still earning the foremost profit.

Why Inventory Management is vital within the offer Chain?

Inventory management is significant within the offer chain as a result of an organization should balance client demand with cupboard space and money limitations. Inventory management provides visibility into the availability chain (procurement, production, fulfillment, etc.) therefore managers will coordinate lead times for deliveries with production timetables.

How will Inventory Management Be Improved?

Keeping correct accounting records and taking regular physical stock counts will improve your inventory management efforts. A system that gives your organization periodic visibility into inventory will facilitate stakeholders build important business selections. you ought to even be attentive to a stock’s condition, particularly if you’re addressing foodstuff.

How Inventory Management Affects the assets?

Real merchandise in warehouses hold up assets till they sell. creating the availability chain a lot of economics keeps you from holding an excessive amount of stock. Up inventory management processes help you forestall storing, selecting and shipping errors that cut back sales.

What area unit Inventory Management Policies?

Inventory management policies are unit plans for the way to use inventory to make customers happy and cut back prices. Policies define such things because of the stock management methodology the corporation uses.

What area unit the categories of Inventory Management Systems?

There are many forms of inventory management systems that companies use counting on however they operate. 3 examples are unit manual inventory, periodic inventory and perpetual inventory. Manual strategies area unit the smallest amount refined and least correct, and perpetual systems area unit the foremost refined and most correct.

Manual Inventory System: This involves physically numerating things and recording them on paper or during a computer program. Little businesses could use manual systems.

Periodic Inventory System: Periodic inventory systems embrace manual and periodic counts. Periodic counts record item details as things move in and out of stock. Barcodes change stocktaking. The information contains the records of stock levels and locations.

Perpetual Inventory System: Perpetual inventory systems offer period stock knowledge, as they have faith in active frequency identification (RFID) tags that area units continually on and causation updates on item movements. Passive RFID tags, meanwhile, use a scanner to send stock data to the information.

What Is Service Level in Inventory Management?

A service level for inventory management is what quantity an organization believes it will with success store a selected stock.In different words, it’s the likelihood an organization can avoid stockouts and support sales.

How will ERP facilitate Inventory Management?

Enterprise resource designing (ERP) is useful for inventory management as a result of it tracks and provides insights into offer chain operation, accounting and buying, consolidating the knowledge and creating it visible in one place.

What Is Poor Inventory Management?

Poor inventory management is an associate degree imbalance between keeping an excessive amount of and deficient stock. The definition of an ideal balance will be amended as demand amendments: Sales amendment once trends or seasons change. Poor stock management will increase prices and thereby reduce profits.

Conclusion -

An Inventory Management System recommends refilling supported dynamic optimum levels, guaranteeing that the following order you place is the right amount for each of your customers and your business.

In addition, exception lists highlight each current problem and potential future problems, and rank them to support the impact on your business. This permits you to proactively manage your inventory, reducing the prices related to inventory, the price of your inventory, and increasing your service level to your customers.

Published By :

 Kshitija Chavan

 Atharva Chitrakar

 Pranav Darekar 

 Shreyas Narvekar

 Aman Patel