Inventory management is the collection of strategies and tools that businesses use to manage their merchandise, as well as production and delivery workflows. Read on to learn more about how inventory management works and why it’s important for various industries.
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What Is Inventory Management?
Inventory management aids businesses in determining which merchandise to order when and in what quantities. Inventory is tracked from product acquisition to sale. To guarantee an adequate inventory to fulfill client orders and a proper reminder of any inventory shortfall, inventory management techniques recognize trends and react to them.
Inventory turns into revenue after it is sold. It ties up cash before being sold while being listed as an asset on the company’s balance sheet. As a result, having too much stock is expensive and lowers cash flow.
Inventory Management vs. Supply Chain Management
Compare inventory management against supply chain management in the table below:
|Inventory management||Supply chain management|
|Inventory management may focus on trends and orders for the entire company or a specific division within it.||Supply chain involves managing supply relationships outside of a company, as well as the movement of stock into and out of the company.|
|Inventory management oversees the movement of merchandise from factories to storage facilities and from these locations to retail locations. It is a component of supply chain management.||Supply chain management works at a macro level with more strategic areas, including logistics, accounting, storage, and IT.|
|Inventory management involves the transportation and visibility of goods into, through, and out of the warehouse.||All aspects of the supply chain, including sales forecasting, manufacturing, quality assurance, fulfillment, logistics planning, and customer support, require inventory visibility.|
|The inventory manager keeps supplier lead times and prices in mind while focusing on their local inventories and placing suppliers.||The supply chain manager oversees inventory and flows while bearing in mind all production and capacity factors.|
Features of Inventory Management
Centralization of inventory control
The inventory management system’s ability to monitor all inventory data is one of its most crucial features. A solid inventory management system consistently keeps a record of the product’s history, inventory levels, and many other details. Inventory control software’s ability to synchronize with other inventory system components aids in the precise running of the system.
A unified inventory management system boosts team member efficiency and cooperation. As a result, team members from various locations can communicate and collaborate.
Product availability and demand
Utilizing inventory management software, business owners more effectively manage their inventories. Managers are able to better manage and visualize supply and demand for the company’s products, which helps them to optimize their inventory for appropriate availability and maximum profit.
Backup and inventory security
Regardless of what kind of business you run, inventory safety and backup measures are essential to effective inventory management and operations. Software for inventory management systems contains strong security measures that prevent hacking. Business owners can access and use the data from a backup when inventory software is compromised. Therefore, the inventory management solution’s backup and security features help to avoid any problems.
Alerts regarding details of the inventory
The era of manual inventory control is over. Managers no longer need to devote a lot of time and effort to managing stock data. A stock-out alert tool is an excellent addition to an inventory management system. This system feature describes many potential consequences of low stock for a specific item in the notifications.
What Are the Benefits of Using Inventory Management Software?
Inventory management automation
Inventory management automation reduces the likelihood of human error, saving users countless hours and guaranteeing greater accuracy. This function is essential for accurate forecasting as well as for providing a positive customer experience and preventing overselling.
Inventory forecasts for high season and holiday preparedness
Inventory management software helps users to more accurately track both stock quantity and forecasted demand, even when order volumes significantly increase due to holidays or other sharp increases in demand.
Overselling and stock shortage prevention
In order to determine when to replenish stock, an inventory management system simultaneously manages sales and stock across each retail channel. This ensures that businesses stay in the balance between too much and too little inventory.
Lower costs for online businesses
Comprehensive inventory management system reports let users know what they currently have in stock, saving warehouse workers the time they would have spent searching for inventory that isn’t actually there. This process ensures that pick, wrap, and ship procedures run smoothly, allowing the company to easily fill more orders.
Best Practices for Inventory Management
Implement batch tracking
Batch tracking is a mechanism for quickly tracing goods along the distribution process. A specific group of products that were created simultaneously and use the same materials is referred to as a “batch.” Many inventory management solutions offer support for batch tracking, but in general, it’s a good practice to organize your inventory tracking along these lines.
Use an accurate reorder point formula
The lowest quantity of stock you can maintain before needing more is the point at which a reorder point formula estimates you should acquire more stock.
By continuously ordering the proper quantity of stock each month with the use of a tested mathematical procedure, your company can stop falling victim to market upheavals and downturns.
This formula is known as a reorder point equation. You can use the following reorder point formula:
(Average Daily Unit Sales x Average Lead Time in Days) + Safety Stock = Reorder Point.
Make your stocktake more timely
To reduce the likelihood that your workers will make expensive mistakes, streamline the processes you use to tally your stock, or your stocktaking process.
Beyond more quantitative methods and strategies, your stocktaking process should include procedures to keep workers interested, focused, and motivated when looking for inventory discrepancies.
Interested in finding tools to better manage your inventory? Explore your options in this TechnologyAdvice Inventory Management Software Buyer’s Guide