What is inventory management?
Inventory management is the process of full supervision of inventories from the manufacturer’s possession to the consumer’s hand. By controlling inventory movements to reduce time wastage and the blocking of financial resources aids businesses in tracking inventories from the point of acquisition all the way to the sale of items.
In this article Ibrahim Abdullahi will outline three advantages of inventory management, which include;
- Inventory tracking and control
- Inventory optimization and cost-cutting
- Demand planning and inventory forecasting
Inventory control and tracking
Companies use inventory tracking as a method to make it easier to keep track of raw materials or completed goods as they move along a supply chain. An easy-to-control system will be instantly created after the business installs a tracking mechanism for the stocks.
There are two methods a business might track its inventory:
- Periodic inventory, which involves manually counting each item after each week and comparing the results to sales.
- Perpetual inventory: With this approach, the company’s POS is coupled with an inventory management system to make tracking automatic. You may be able to avoid potential inventory mistakes or inefficiencies by doing this.
Inventory optimization and cost reduction
While Inventory optimization (IO), is a strategy for balancing the amount of working capital that is tied up in inventory together with service-level objectives across multiple stock-keeping units, cost reduction is the process of reducing inventory to match the reduced demand. Optimizing your inventory will help you to ensure that you cover your clients` needs, matching the exact time they need-without holding too much inventory. Inventory reduction also eliminates obsolete inventory which if not attended to it under dire circumstances, will cause cash flow down the drain and a complete waste.
The techniques listed below are beneficial for cutting costs;
- Just In Time (JIT) Method
- Target Costing (TC) Method
- Activity- Based Costing (ABC)
- Enterprise Resource Planning (ERP)
- Value Engineering (VE)
This is the process through which one can predict and plan the quantity of inventories that can cover the needs of future customer orders based on how much product you expect you will sell over a given period of time. The primary objective of inventory forecasting is to limit limited set of illusory certainties and identify a full range of possibilities.
The following factors may positively or negatively affect inventory forecasting in manufacturing companies.
- Economic Conditions
- Customer feedbacks
- Previous Sales
- Industry Trends
Now that you understand The Best Practices in Inventory Management, find out how our team can help you streamline your inventory management processes.
