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What Is Inventory Management

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7 views

What Is Inventory Management

Uploaded by

Ashley Dayan Cuero Murillo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Transportation and inventory management are two key components of

logistics, the process of planning and executing the flow of goods and services
from origin to destination. Combining them effectively can help you reduce costs,
improve customer service, and optimize your operations.

What is Inventory Management? Benefits, Types, &


Techniques

What Is Inventory Management?

Inventory management helps companies identify which and how much stock to order at
what time. It tracks inventory from purchase to the sale of goods. The practice identifies
and responds to trends to ensure there’s always enough stock to fulfill customer orders
and proper warning of a shortage.

Once sold, inventory becomes revenue. Before it sells, inventory (although reported as an
asset on the balance sheet) ties up cash. Therefore, too much stock costs money and
reduces cash flow.

One measurement of good inventory management is inventory turnover. An accounting


measurement, inventory turnover reflects how often stock is sold in a period. A business
does not want more stock than sales. Poor inventory turnover can lead to deadstock, or
unsold stock.

Why Is Inventory Management Important?


Inventory management is vital to a company’s health because it helps make sure there is
rarely too much or too little stock on hand, limiting the risk of stockouts and inaccurate
records.

Public companies must track inventory as a requirement for compliance with Securities
and Exchange Commission (SEC) rules and the Sarbanes-Oxley (SOX) Act. Companies
must document their management processes to prove compliance.

Benefits of Inventory Management


The two main benefits of inventory management are that it ensures you’re able to fulfill
incoming or open orders and raises profits. Inventory management also:
 Saves Money:
Understanding stock trends means you see how much of and where you have
something in stock so you’re better able to use the stock you have. This also allows
you to keep less stock at each location (store, warehouse), as you’re able to pull
from anywhere to fulfill orders — all of this decreases costs tied up in inventory and
decreases the amount of stock that goes unsold before it’s obsolete.

 Improves Cash Flow:


With proper inventory management, you spend money on inventory that sells, so
cash is always moving through the business.

 Satisfies Customers:
One element of developing loyal customers is ensuring they receive the items they
want without waiting.

Inventory Management Challenges


The primary challenges of inventory management are having too much inventory and not
being able to sell it, not having enough inventory to fulfill orders, and not understanding
what items you have in inventory and where they’re located. Other obstacles include:

 Getting Accurate Stock Details:


If you don’t have accurate stock details,there’s no way to know when to refill stock
or which stock moves well.

 Poor Processes:
Outdated or manual processes can make work error-prone and slow down
operations.

 Changing Customer Demand:


Customer tastes and needs change constantly. If your system can’t track trends,
how will you know when their preferences change and why?

 Using Warehouse Space Well:


Staff wastes time if like products are hard to locate. Mastering inventory
management can help eliminate this challenge.
Inventory Management Process
If you produce on demand, the inventory management process starts when a company
receives a customer order and continues until the order ships. Otherwise, the process
begins when you forecast your demand and then place POs for the required raw materials
or components. Other parts of the process include analyzing sales trends and organizing
the storage of products in warehouses.

How Inventory Management Works


The goal of inventory management is to understand stock levels and stock’s location in
warehouses. Inventory management software tracks the flow of products from supplier
through the production process to the customer. In the warehouse, inventory management
tracks stock receipt, picking, packing and shipping.

Inventory Management Techniques and Terms


Some inventory management techniques use formulas and analysis to plan stock. Others
rely on procedures. All methods aim to improve accuracy. The techniques a company
uses depend on its needs and stock.

Inventory Management vs. Logistics


Logistics is the practice of controlling processes in a warehouse and in the replenishment
and delivery systems. Inventory management maintains stock levels and manages stock
location.

Inventory management is a crucial part of how companies manipulate their logistics. The
relationship between inventory management and logistics is interdependent. Logistics
need inventory management to perform their activities. Good logistics systems improve
warehouse and operational activities.

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management.shtml#:~:text=Inventory%20management%20helps%20companies%20identify,proper%20warning%20of
%20a%20shortage.

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