Before defining what is inventory management let us discuss what inventory is?
Inventory is a physical resource that we can touch, that has a physical appearance. It is the current asset whose time is one year that a company consumes as raw material or sells it for profit.
There are three types of inventories:
- Raw material
The material used by the company to create and finished the products. the original form is unrecognized at the end, such as wood pulp, cotton fiber, and cellulose fiber in the manufacturing of paper
- Work in Progress ( WIP)
It is a process of making a product from different other parts such as in making car different parts are needed to put all together. These include a battery, alternator, radiator, front axle, rare axle, fuel tanks, etc.
- Finished goods Inventory
This inventory includes already finished products which are ready for sale. The only cost is its packaging and the labor involved. E.g., In a bakery, the finished products are the treats that are ready to be sold.
Inventory Management is the process of planning, controlling, organizing, and leading how much unit a company needs to order, deliver, restock, and how much are their external and internal needs.
An inventory system is necessary for a business to track and control its supply, if there are no proper management conditions will be unfavorable. Either your business will be overstocked or understocked. Inventory management is always dynamic, and it requires constant evaluation through review and planning.
In inventory management, the input is in the form of raw material, consumables, maintenance items, packing materials, and locally purchased. All these will go under process and results in semifinished production, work in progress, production of wastes, scraps, rejection, and defective. And at the very end, the result is finished products, defectives, rejects, sales returns, repaired stock and parts, sale promotion, and sample stocks.
In the past inventory management was operated manually where there was a great chance of human error. In recent days software is introduced to manage the process which results in higher accuracy and a lot more benefits like timesaving, cost-friendly, convenient to use and operate.
Now artificial intelligence is introducing very rapidly which makes management even easier.
Like CMS Development Artificial intelligence automatically predicts how much stock is needed to manufacture the products according to the needs of consumers based on existing data. :
How inventory management works
Manufacturers –→raw material–→Finished goods →warehouse–→ distributors/retailors The manufacturers ordered raw materials for the desired products to be formed. The raw material is converted into products through different processes which are then stored in warehouses. From warehouses, they are further transported to distributors and retailers for sale.
This overall process is managed and tracked by inventory management. This management helps the industry to meet customer demands and increases its sales.
Types of Inventory management systems:
There are various forms of Inventory management, i.e.,
- The periodic method
- The perpetual method
- Barcode systems
- RFID tagging systems
Depending on each business type a specific management system is required to be followed. As this will keep them on the right track. Objectives of Inventory Management:
The objectives of inventory management are as follows:
- To maintain optimum inventory level to maximize the profitability and reduce the cost.
- To avoid both overstocking and understocking of inventory.
- To meet the demands for products by organizing the production and sales operation.
- To eliminate duplication.
- To ensure the quality of goods.
- To run the production efficiently.
- To minimize investment in inventory.
- To provide the required material on time.
- To maintain the stability of the system.
- To ensure the effectiveness of the process. Benefits of an Inventory Management:
- Warehouse Organization:
Good inventory management leads to an organized warehouse. If your warehouse is organized every process will be in a systematic manner and if it is not, you will be facing challenges in maintaining stability. An organized warehouse results in a more efficient present and future fulfillments plan. Warehouse organization also helps in the storage of products. More goods are stored in less space with proper management.
2. Simplified management:
Inventory management is very simplified and easy. Using inventory managing software makes the process a lot easier. It saves your time and money, and at the same time accuracy is at its peak. It is a simple convenient method which a business can adopt to gain success.
3. Enhances Product Quality:
Proper inventory management and control aids in improving product quality. If the quality of products is up to the mark it will automatically attract the customers, and they will always keep visiting without any second thought. A firm is better recognized for its quality products than anything else. With the best quality products, a business comes in competition with high rankers of the market.
4. Improves customer service level:
If you have the right Inventory Management at the right time with the right quality, you should be able to provide good customer service. All business strives for continuity, i.e., the repetition of clients. A good customer service level attracts the bulk of new clients and the existing ones too. The business got its publicity from word to mouth process.
5. Avoid Interruption in Management:
Inventory control and management are beneficial to avoid any interruption in manufacturing. It is important to keep a watchful eye on your inventory, if you don’t have the right number of parts, you will not be able to produce products on time. This will directly affect customers’ demand and understocking of the inventory. A perfectly managed inventory is free of the above challenges.
6. Greater profit:
A better inventory leads a firm towards greater profits. The demand for products and their availability at the same time is necessary for an Inventory turnover results in its higher profits. If the profits are higher the firm can achieve such milestones the profits will be higher. They will further invest to increase their stock and improves the quality too.
If your time management is good a successful inventory will be formed. Every worker will be punctual. The process of production will be continuous, and the business is progressing towards success. A well-managed inventory produces a bulk of products with great efficiency and better quality as compared to an unorganized one.
8. Reduces Error:
A well-organized inventory consists of inventory software management like a Professional web design company. The software automatically records all the data and tracks all the processes at each step leaving no room for errors. Whereas working manually there is a greater chance of human errors. The system involves complex calculations which is easily and efficiently managed by software. It also saves a lot of time. Reduction in error leads to greater output.
9. Improves cash flow:
A proper and managed inventory always allows cash to move through it. . Items flow into the system remain for a time and then flow out. The money that is invested in the business is not only consumed in the process but the desired product is also purchased by the customer in no time thus maintaining the equilibrium between investment and regaining of the money with profits to the company.
By introducing inventory management in your system, it results in saving money by eliminating human errors. It also avoids the stock out and excess stock thus manages the potential loss of the sales and profit of the business. It reduces the supply time thus maintaining a healthy relationship with the supplier.
11. Increased Productivity:
Properly managed inventory saves a lot of time that can be spent on other activities. Further improvements can also be done for its betterment.
So why is inventory management necessary or important? It is very clear from the above discussion that a well-managed and organized inventory is the need of today’s business companies. The advantages of these systems are impossible to deny. The inventory system has caused ease for the investing companies. With proper management, the objectives are fulfilled with greater efficiency. The customer service levels are improved which drags a company in top ranks. With proper management, businesses are getting recognition in the marketplace. Proper inventory management has a greater impact on a company selling status as more and more products are produced with greater accuracy and better quality the customers are happily willing to buy products. The inventory system gives you knowledge about the amount of raw material needed for the final product. This information is very necessary for a system to create the final product. Without it, a company may end up with excess stock or it may be out of stock. An Inventory system is thus very important, or we can say that it is very essential for a business to have a proper, managed, organized inventory to achieve its goals and objectives. Inventory management offers good plans that satisfy customers while maintaining the lowest possible total cost. Inventory management helps you sell better, increases your efficiency, causes you to cost less, gives you the ability to make profitable decisions, improves your business negotiations, and reduces the risk of overselling.