Inventory Management: How to Organize and Plan Effectively
Inventory management is the planning and organization of a company’s inventory with the help of advanced and unique management systems. Choosing the right inventory management system and putting it into practice is not always easy. This is why some companies automate the process by utilizing inventory management software. Inventory management software allows companies to track supply chain management processes, inventory deliveries, sales orders, and purchases in one virtual interface.
Inventory Management vs. Inventory Control
Inventory management and inventory control are a great mother/daughter duo. While inventory management focuses more on the overview of an inventory system and replenishing necessary items, inventory control works more specifically to regulate the number of units in stock. Essentially, inventory management ensures that you have what you need when you need it, and inventory control ensures what you already have is working efficiently for you right now.
Benefits of Inventory Management
Inventory management allows you to be one with your inventory. 76% increase in revenue for companies who have invested in inventory management optimization strategies. (Source: Perficient)
- Increase profits: Knowing how much is expected of you and delivering it makes you generate more cash flow.
- Improve accuracy: When you continuously monitor and optimize, you create space for more precision in inventory counts and demand forecasting.
- Decrease costs: Improving accuracy results in fewer human and technology errors; wasting time fixing inventory mistakes is money straight from your company’s pocket.
- Boost customer loyalty: Inventory management allows you to know exactly how much inventory you have and allocate it appropriately to keep your customers happy.
- Lower risks: Effective inventory management lessens the chances of a product shortage or surplus.
Types of Inventory to Track
Inventory categories may differ based on company needs and product portfolio, but most companies can categorize their inventory materials into the following types:
- Raw materials: Materials used for the production of company assets, including direct and indirect materials.
- Work-in-progress (WIP): Raw materials and goods that have not been finished yet, such as an outer frame of a car that doesn’t have wheels.
- Completed items / Finished goods: Goods that have gone through production and manufacturing and are considered fulfilled or ready to be sold.
- Project supplies: Items being used in the process of ongoing company projects, including construction equipment and packing materials.
- Repair supplies: Materials kept in inventory to be used in necessary repairs or regular production maintenance.
- Non-inventory items: Goods bought in bulk but only used in very small amounts per produced product, like screws and glue.
The Role of Inventory Tracking
Inventory tracking is the process of overseeing and tracking a company’s stock. This includes monitoring inventory parts, locations, and quantities. It lays the groundwork to guarantee available resources that will eventually be finished products in consumers’ hands at the end of the supply chain. Implementing a successful tracking system can give companies the tools they need to optimize their inventory strategies and entire company structure. Inventory tracking and management is regarded as one of the first steps in the supply chain.
Manufacturing Inventory Management
Manufacturing inventory plays a crucial role in supply chain management and directly affects the capability to meet demands. Put simply, inventory is all the items you use in your business or the sum of all the items you wish to sell. Inventory management aims to align all your inventories, so the end customer is satisfied when the finished product reaches them. For instance, a wood furniture manufacturer has different kinds of wood, varnish, and paint in their raw material inventory to create finished goods.
