Have you wondered what’s the importance of inventory management? Nowadays, tracking inventory is one of the most crucial factors for any business handling physical products. Through inventory management, you can manage your inventory more efficiently. Some of the uses of inventory management are counting items, stocking various products through all of the production stages, identifying market trends, cost-cutting when replenishing, etc.
Inventory management can be very helpful to your business and that is why careful managers highlight the need for adopting top solutions. You are not sure if your business can use inventory management? There are many types of inventory for multiple products and uses. Let’s get it started!
What Are The Types of Inventory?
Before jumping to explaining the importance of inventory management, it’s important to know the different types of inventory. Did you know that inventory has different types depending on the field of each company? Let’s check them out!
1. Raw Materials
Raw materials are unprocessed materials or primary commodities. They are well-known as basic materials that are used in order to create other goods. They are necessary to track because by handling their stock, your business will be able to forecast the upcoming production. Some examples of raw materials could be coffee, sugar, and milk in case you are running a coffee business.
2. Finished Goods
Finished goods are the products that you complete during the manufacturing process and are ready to be sold. Also, finished goods may be purchased as completed if you cannot perform production. Can you think of an example? A store that buys necklaces already made by a manufacturer could be such a case.
3. Packing Materials
As you can imagine, packing materials are the products which a company needs to pack other existing products and transfer them somewhere else. In other words, packing materials are the inventory each business uses to pack and ship finished goods.
There are 3 different categories for packing materials; primary packing, secondary packing, and miscellaneous packing. Primary packing includes products such as a wine bottle, a crisp packet, or a can. Can you guess what secondary packing is about? Imagine a box containing multiple custom boxes of beverages in a warehouse. The bigger box is the secondary packing and the bottles that contain the beverages are the primary packing. Miscellaneous packing refers to diverse products and the creation of it depends on the need of each product. Safety supplies, pallet scales, and maintenance supplies are examples of miscellaneous products. At first glance, packing materials may not seem important to the inventory process. Although, they are very significant because they are part of the inventory products that are used every day.
4. Cycle Inventory
Cycle inventory is a product of economic order quantity theory (EOQ). “Economic Order Quantity, also known as Economic Purchase Quantity, is the order quantity that minimizes the total holding costs and ordering costs. It is one of the oldest classical production scheduling models” as seen on Wikipedia. In other words, if a business orders a huge number of parts of a specific product, the inventory cost may increase but the machine setup costs decrease due to the only one-time setup. Otherwise, if a business orders a small amount of the same part of a specific product the inventory costs may decrease but the machine setup costs will increase because of the multiple uses necessary.
5. MRO Goods
MRO goods are Maintenance, Repair, and Operating supplies. These supplies are industrial equipment and other supplies such as repair tools, computers, furniture, etc. Thus, MRO goods are items that ensure the success of tasks in the production process. MRO goods have their own type of inventory which is MRO inventory management. This type of management includes the process of obtaining, storing, using, and refilling the materials and supplies used for maintaining assets. The aim of MRO inventory management is to ensure that the business is having the right stock at the right time, place, and at the right cost.
6. Transportation or Transit Inventory
The Transit Inventory includes the transportation of an item that is moving between the manufacturer, warehouses, and distribution centers. Transit Inventory is essential to businesses that need to transport items or materials from one location to another.
Benefits of Using Inventory Management
Now that you know a bit about inventory, it’s time to talk about the benefits and importance of inventory management. By using inventory management, the order fulfillment happens in time and more accurately. Combining inventory management with a strategic plan will optimize the process of supervising and managing stock, including knowing the real-time data of the conditions and levels of the available stock.
Intricate inventory management deals with issues such as having huge demands for a product while not having enough raw materials to supply the same. With an effective inventory management system, a business can track the stock in the warehouse, and decrease the overstocking or understocking problems. Thus, the warehouse of the business will be organized and ready to fulfill the customer’s needs.
Inventory Management Can Boost Customer Satisfaction
Have you thought about the consequences of using inventory to your customer’s satisfaction? This is a key factor in the strategy of your business. Managing and organizing your inventory will give you an overview of the availability of stock which translates to customer satisfaction. The ideal inventory management software will lead to the fulfillment of the orders in a quicker way. This meets the most common criteria of good customer experience, which is time.
What happens when you do not use inventory management? Customers might place orders for products that aren’t in stock. This way, the fulfillment of the orders won’t be accessible and customers will have to wait for the stock to be filled again. As you can understand, this procedure delays the reception of the order and takes the business one step back from the customer’s satisfaction.
What about the inventory theft? Inventory theft is one of the most common issues that arise in today’s businesses due to the lack of inventory management. By using inventory management the business will be able to track the products depending on their location. As a business, you will be able to know your accurate stock count on each location thus avoiding inventory theft.
Megaventory, the inventory management software solution can help you track your products and avoid inventory theft. Do you need our help? We are here for you! Book a chat with us and let us guide you.
Improved inventory management software will also reduce labor costs associated with inventory. Labor costs consist of the time that the employees spent to count the stock and the transportation of it. An intelligent inventory management software solution provides business intelligence and insights to each company. Furthermore, the company can organize the warehouse and their upcoming orders based on the demand of each product line.
So what’s the importance of inventory management? Well, with inventory management you can track inventory in real-time and fulfill orders quicker. Additionally, it helps with organizing your warehouse and preventing overstocking and understocking as well as inventory theft. Customer satisfaction is also one of the reasons why inventory management is important. If you want your business to succeed, implementing an inventory management strategy is unavoidable.
Stamatia Manolara is a Digital Marketer and Content Creator for Megaventory. Her passion is staying up to date with the latest digital marketing technologies as well as upgrading her skills and developing new ones.