What is Inventory Management?
Inventory management involves keeping track of a company’s stocked goods. It monitors their weight, dimensions, amounts and location. This helps business owners know when it’s time to replenish products, or buy more materials to manufacture them.
Effective inventory management is essential for ensuring a business has enough stock on hand to meet customer demand. If inventory management is not handled properly it can result in a business either losing money on potential sales that can’t be filled, or wasting money by stocking too much inventory. An inventory management system can help prevent these mistakes.
Inventory Management Systems
Business owners can create their own inventory systems from scratch. If it’s a large business with a lot of inventory, that may not be realistic. Some opt to purchase established inventory management software to make the process easier. These systems usually include things like item descriptions, item numbers, units of measure, and item locations in the warehouse or storage facility. To make materials and products easy to find, numbers and descriptions must be clear and easy to understand, and their organization within the system must be as logical and intuitive as possible.
One goal of inventory management is to help business owners determine when to purchase new stock so they can stay ahead of demand. This is also known as a purchasing plan. Different businesses use different kinds of purchasing plans depending on the needs of their industry. For example, a small, online business might not have the storage space to keep a lot of stock on hand. In this case, they might opt for a ‘just-in-time’ purchasing plan, which ensures they receive the stock they need ‘just-in-time’ to meet demand.
Some businesses base their purchasing plan on past sales data. If they know what projected sales are likely to be, they can create a stock replenishment schedule to meet that predicted demand. Some businesses also keep a little extra stock on hand in case anything is defective and needs to be replaced.
Benefits of Inventory Management
In addition to helping a business stay organized, an effective inventory management system can also help:
- Keep the business profitable
- Reduce costs
- Achieve economies of scale
- Analyze sales patterns and predict future sales
- Analyze performance against competitors
- Prepare the business for the unexpected
With the right inventory management system in place, a business has a better chance for profitability and survival.