Inventory management is how a business orders, stores, uses and sells its goods. It includes storing and processing raw materials, parts, and finished products, as well as managing raw materials, parts, and finished products. There are different ways to manage inventory, and each has pros and cons that depend on what a business needs.
Do you know what is inventory management in supply chain? The purpose of inventory control is to guarantee the availability of needed goods at all times. To do this, you must have a clear picture of your inventory.
Still, 43% of small businesses need to track their inventory, and the average accuracy of the supply chain in U.S. retail operations is only 63%. It means that many retailers need to start using the inventory management software that’s out there.
What are the kinds of inventory management?
Supply chain management relies heavily on inventory management, which involves keeping tabs on items in stock and how they are being moved about, whether they are being delivered as raw materials to manufacturers or sent out as completed goods to customers.
The remainder of your supply chain will function if you have a well-oiled inventory system. Do you know what inventory management techniques are? You run the danger of a wide variety of errors without it, including<a href="https://foxbusinesstips.com/index.php/2022/12/21/a-successful-business-model-for-advertising-agency-strategic-planning/" title="<strong>A Successful Business Model for Advertising Agency — Strategic Planning business model for advertising but not limited to: mis shipments, shortages, out-of-stocks, spoiling (when dealing with perishable stock items), overstocks, mispicks, and so on.
Effective inventory management is a cornerstone of sustainability since it reduces expenses, boosts cash flow, and maximizes profits. What are the three major inventory management techniques? Find out below:
1- Periodic inventory control
Using a periodic inventory system, you may calculate the value of your stock for use in your books. It involves doing a physical count of the inventory at certain times. This method of accounting takes stock at the beginning of a period, adds new stock bought during the period, and subtracts stock at the end of the period to get the cost of goods sold (COGS).
2- Barcode inventory management
Businesses use inventory management systems that use barcodes to give each item they sell a number. They can link several pieces of information to the number, such as the supplier, the size and weight of the product, and even variable information like how many are in stock.
3- RFID management of stock
RFID-based warehouse management systems can improve efficiency, make it easier to see what’s in stock, and ensure that receiving and delivering goods are quickly and automatically recorded.
Inventory Management Process
Before making a plan for inventory management, you’ll need to know each step of the inventory management process. There are inventory management examples. You must choose your company’s most suitable inventory management programme and avoid common pitfalls.
- Goods are sent to your place of business. It is the first time raw materials, parts, or finished goods for consumers come into your warehouse.
- Check, sort, and put away goods. Whether you use drop shipping, cross-docking, or a different warehouse management system, this is when inventory is checked, sorted, and put in its stock areas.
- Check the amount of stock. It can be done through physical counts, software that keeps track of inventory all the time, or cycle counts, which helps reduce the chance of making a mistake.
- Stock orders are placed. Customers can place orders in person or on your website.
- Stock orders are approved. It is when you give the order to your supplier, or your POS system may do it automatically.
- Take goods from stock. Using the SKU number, the needed goods are found, taken from stock, and sent to the manufacturer or customer.
- Check the stock levels. With a perpetual inventory system, stock levels can be updated automatically and shared with the right people.
- When inventory drops too low, it’s time to shop or restock. As needed, restock the items.
Try making an inventory process map like the one below to understand these eight steps better. Track and go over each step of the process to ensure enough stock.
Inventory Management Techniques
Inventory management can be hard, especially for bigger apps with many moving parts, because it involves a lot of different techniques and strategies. Let’s look at some inventory management processes to keep track of inventory that you want to use in your warehouse.
Economic order quantity
Economic order quantity (EOQ) is a formula that tells a company how much inventory it should buy based on variables such as the total cost of production, the rate of demand, and other factors. The formula finds the most units to buy so that buying, holding, and other costs are kept to a minimum.
Minimum amount to order
Minimum order quantity (MOQ) is the smallest stock that a store will buy to keep costs down. Remember, though, that inventory item that cost more to make usually have a lower MOQ than cheaper items that are easier and cheaper to make.
ABC analysis
This method divides goods into three groups to find items that greatly affect the overall cost of inventory.
- Category A comprises your most valuable items, which bring in the most money overall.
- The things in category B are between the most valuable and least valuable.
- Category C is for small deals that are important for making money overall but only matter a little.
Just-in-time management of stock
Just-in-time (JIT) inventory management is a way for companies to ensure they only order what they need and don’t end up with too much stock that goes bad (inventory that was never sold or used by customers before being removed from sale status).
How stock will be managed in the future
<a href="https://foxbusinesstips.com/index.php/2022/12/28/how-to-write-taglines-and-business-slogans-things-you-should-know/" title="<strong>How to Write Taglines and Business Slogans? Things You Should KnowThe way businesses keep track of their inventory is changing because of globalization, technology, and empowered customers. Technologies that provide operators with crucial data on enhancing supply chain performance will be widely used. What are the four types of inventory management? They will be able to predict logistics costs and performance changes before they happen and know where automation can benefit big-scale.
There are 5 importance of inventory management in the future. These technologies will continue to change the way inventory is managed in the future:
| Artificial intelligence | Smart and able to fix itself, AI will make it easier to keep track of inventory and reduce waste. |
| Internet of Things | Data from IoT sensors will show where and how things are with an inventory. |
| Blockchain | It will connect different parties through a single, unchangeable record of all transactions. |
| Intelligent order management | With better demand forecasting and automation, supply chains can see what they have in stock. |
| Quantum computing | Problems that couldn’t be solved before will now be able to be solved. |
Conclusion
Using the right style of inventory management can go a long way. Keeping track of inventory is a key part of running a business. How a business handles its stock depends on what it sells and what kind of business it is. There may be only one best way to manage inventory because each has pros and cons.