Inventory management is the process of organizing inventory as it moves through the supply chain.
The goal of inventory management is to minimize warehousing costs, ensure consistent inventory levels, and get products into customers’ hands faster.
This guide contains expert tips and techniques to help you monitor your inventory and keep your customers happy.
What is inventory management?
Inventory management is the process of recording and managing a company’s inventory. It includes tracking the movement of goods and materials, philippines email list monitoring inventory turnover , and optimizing reordering to ensure that products are always available.
The goal of inventory management is to minimize the cost of holding inventory by helping you determine the right time to reorder products or materials to produce those products.
What counts as inventory?
- Raw materials: Materials or substances used in the production or manufacture of products, such as wood, metals, the pillars of first call resolution plastics or fabrics. They are obtained from one or more suppliers.
- Work-in-progress (WIP): Partially finished products that are waiting to be completed. They include production costs such as labor and machinery. These costs are allocated to the finished goods and charged to the cost of goods sold.
- Finished products: Items that are in stock and available for customers to purchase. Once a WIP product is completed, it becomes part of the finished inventory.
- Maintenance, repair and operating materials (MRO): Materials and equipment that are used in the production process but are not part of the final product, such as personal protective equipment, cleaning products or technical equipment.
How does inventory management work?
Most modern inventory systems are digital and cloud-based, working across devices and users to ensure everyone in the supply chain is on the same page.
Such a system monitors and organizes all inventory items and synchronizes the data with other business systems. There are three main types of inventory management systems: permanent, periodic and manual.
Perpetual inventory systems track inventory in real time. In contrast, periodic systems require physical counts of inventory at the beginning and end of a specific period. Manual inventory systems, on the other hand, colombia business directory are the old-fashioned pen-and-paper method and are only suitable for companies with few monthly sales.
The Importance of Inventory Management
Whether you run a small business or a large company using ERP integration , inventory management is relevant for several reasons:
waste prevention
Products with expiration dates have a limited sales window. Optimal inventory management helps to avoid unnecessary spoilage.
Prevention of slow-selling items
Dead stock is product that doesn’t sell – not because it’s expired, but because it may be out of season, out of fashion, or otherwise irrelevant. By carefully strategizing, you can avoid this costly inventory management mistake.
On the other hand, you should also monitor your inventory levels to minimize the risk of overselling your inventory or capturing faulty phantom inventory.
reduction of storage costs
Inventory is often a variable cost that varies depending on the space you need. If you store too many products at once or have products that are difficult to sell, your inventory costs will increase. Avoid this to save money.
improving cash flow
Inventory has a direct impact on sales, as it determines how much you can sell. As it also determines what you need to buy, your inventory also affects your expenses. Both factors significantly affect your company’s cash balance. Better inventory management therefore leads to improved cash flow management.
optimization of order processing
Good inventory management can significantly improve order fulfillment. For example, you can use tactics like inventory distribution, which distributes inventory across multiple fulfillment centers . This puts your products closer to customers, shortening delivery times and reducing shipping costs – both of which contribute to customer satisfaction.