What’s The Definition of Inventory Management?
Inventory management is the process of ordering, selling, or storing a company’s inventory. The inventory refers to raw materials, consumer goods, and finished goods.
Inventory is one of the most important resources of a company. In multiple types of businesses such as retail, manufacturing, and wholesale the total amount of its products, as well as the data contained, are at the core of the business’s development. Despite the size of the company, inventory management is crucial. That is because either we are talking about a small clothing store or a huge beer manufacturer, both companies need to have their inventory organized to serve their customers’ needs in the best way possible.
It should also be mentioned the fact that a business that doesn’t manage properly its inventory will not have the ability to know when to restock the products, what amounts of products they need to order, produce or purchase, or not even if they have overstocking errors.
What Are The Advantages of Inventory Management
Why do businesses need to manage their inventory? Well, there are multiple advantages that a business can gain by managing its inventory. Let’s dive into them:
1. Automation of Trivial Procedures
By managing your inventory with a software system you will have the ability to avoid procedures that require a lot of time, human resources, and funds
2. Stock Accuracy and Customer Satisfaction
Managing your inventory properly will help you reduce overstocking or understocking errors. Having all the information collected in an inventory management software will give you the ability to be more organized and know exactly when you need to purchase new products as well as the quantity needed.
“Statistics also show just how important it is to maintain inventory accuracy and visibility at all times, with many US businesses still not using any kind of inventory management solution. Having a proper inventory management system also improves customer satisfaction.”As seen on FounderJar
3. Improvement of Efficiency And Productivity
By combining inventory management software with other tools such as barcode scanners, a business can augment its efficiency and productivity as well as increase its development.
Inventory Management Techniques
There are several inventory management methods that a company can take advantage of such as:
1. First In First Out (FIFO)
FIFO is a method used in inventory management where the products you received or produced first will be the ones that get sold the fastest. By applying the FIFO method, the first batch received will be the one to sell first.
2. Last In First Out (LIFO)
LIFO is a method used in inventory management where the inventory that arrived the latest in the warehouse will be the one that gets sold the fastest. The LIFO method can be beneficial when prices rise while companies have the ability to take advantage of lower taxes.
3. Just In Time Inventory (JIT)
JIT is a method used in inventory management where a company calculates the available stock to supply customers until new stock is produced or purchased.
4. ABC Inventory
ABC is a method used in inventory management where inventory is categorized by how important items are to arrange in stock on a regular basis. The A, B, and C letters correspond to a different category of items:
- A: includes products that don’t consume much warehouse cost or space
- B: includes products that consume warehouse space but not in as much as products included in the first category
- C: includes products that consume the highest warehouse cost while they return the least profit.