Inventory Management

Overview

Inventory management is a sub-discipline of logistics that focuses on the control of inventory in a business. Depending on the nature of the business and the products it sells, there may be multiple approaches to managing inventory. Some of the activities involved in inventory management are maintaining an appropriate level of stock, identifying inventory requirements, setting targets, reconciling inventory balances, and reporting inventory status.

By completing these processes an organization gains a better understanding of its inventory and how to better position its business. Having up to date information about when a particular item is running out, for instance, allows a company to quickly respond and ensure that the item can be replenished in a timely fashion.

How It Works

There are components of inventory management that are integrated into a company's sales system, so it is important that the two work together to maximize effectiveness and profits. To do so, it is important to focus on the two key processes of inventory management: optimizing inventory levels while fulfilling existing orders and creating a streamlined order fulfillment process.

For maximum success you can implement various other inventory management models like flow production, batch production, and re-manufactured parts inflow. Once these processes are implemented, testing and revision should be done to make sure the entire inventory management system is effective.

Benefits

Managing inventory gives organizations better visibility into their business operations and a competitive edge over the competition. With effective control and management over inventory stock, as well as accurate visibility and efficient order fulfillments, a company can give customers great prices and quick service. Proper inventory management can also help cut down operation costs by allowing a company to take actions sooner, proactively affect cash flow, and make more responsive business decisions.

Costs

Depending on the nature and size of your business, the technologies used to manage inventory will differ. Therefore, the costs associated with implementing these systems, processes and controls also vary.

There are three main types of costs involved in inventory management - inventory costs, inventory maintenance, and inventory tracking. Other costs involved in inventory management are ordering costs and the cost of shortfalls. Of course, there are labor costs for implementing and then maintaining inventory. It is recommended to either hire staff that is trained in using and implementing such systems or to employ consultants who can design a system based on your unique requirements.

Timing

If your company seems to be having issues with keeping items in stock or with customers not getting products delivered on time, it is probably the right time to have to implement an inventory management system. Even if you do not yet have these problems it may be a good idea to invest in inventory management as a precautionary measure before these situations arise. As a business grows and the demands of customers increase, it can become more and more difficult to keep track of inventory.