If you are a small business owner or a large retailer, you need to know how inventory management works. Inventory management is the process of tracking and controlling your company’s inventory as it is purchased, manufactured, stored, and consumed. It controls the movement and flow of goods from the supplier to the storeroom to the consumer. In today’s competitive retail environment, inventory management is one of the core skills that will help your business thrive. In this blog post, we will explore what inventory management is and how it affects your business.
What Exactly is Inventory Management?
Inventory management is the process of tracking and controlling your company’s inventory as it is purchased, manufactured, stored, and consumed. It controls the entire flow of items, from purchase to sale, ensuring that you will always have the right quantities of the right item in the right location at the right time.
It controls the entire flow of items, from purchase to sale, ensuring that you will always have the right quantities of the right item in the right location at the right time.
What is inventory?
The goods that your company handles with the goal of selling are referred to as inventory. It could be raw materials that you purchase and transform into something completely new, or it could be a bulk product that you disassemble and sell separately. It could even be something wholly intangible, such as software.
Different Type of Inventory
There are several types of inventories, and the ones you will deal with will be determined by the products you sell. Here’s a quick rundown of some of the most common:
- Finished goods or for-sale goods are the items you sell to customers.
- Raw materials are the inventory used to create final products.
- WIP: Essentially, unfinished items are inventory that is halfway through the production process.
- MRO merchandise: MRO stands for maintenance, repair, and operation. This is the inventory that you use to help with the production process.
- Safety stock: extra inventory kept on hand to deal with supplier shortages or increases in demand.
Every business that deals with inventory will require some sort of proper inventory management system. Let’s look at how that works in practice.
What is the workflow for inventory management?
Inventory management works on a basic level by tracking items, components, and ingredients across suppliers, stock on hand, manufacturing, and sales to ensure that stock is used as efficiently and effectively as appropriate. It may go as far as you need it to, such as studying the distinction between dependent and independent demand or predicting sales to plan ahead. But, in the end, it all comes down to your stock.
Take, for example, Uchenna’s Bakery.
Uchenna plans to open a shop where he will sell his baked bread. He uses flour, egg, yeast, sugar, salt, milk, and oil/fat to make each loaf of bread. He goes to his supplier and purchases the ingredients that he needs in bags. All of these are now part of his company’s inventory.
Uchenna’s inventory levels will fluctuate as he converts raw materials into breads and then sells them. He’ll have to keep track of how much of each material he has on hand at all times, how many breads he can produce, how quickly he can bake them, where his materials are, how many breads he’s selling, and a lot more. It’s all about inventory management.
Don’t worry if that seems complicated-inventory management becomes a lot easier to understand if you break it down into the five major stages that your items will go through.
The inventory management process is divided into five distinct stages.
Inventory management entails tracking and regulating goods as they flow from suppliers through warehouses to consumers. There are five major stages to go through:
- Purchasing: This might imply purchasing raw materials to convert into goods or purchasing things to sell that do not require assembly.
- Production is the process of assembling your finished product from its component parts. Not every business will engage in manufacturing; wholesalers, for example, may avoid this phase completely.
- Holding stock: storing your raw materials before they are made (if necessary), as well as your finished items before they are sold.
- Sales are the processes of getting your inventory into the hands of customers and collecting payment.
- Businesses must know how much they are selling and how much money they make on each transaction.
Inventory control vs. inventory management
Inventory control is an important aspect of inventory management, but it is not the same thing.
What exactly is inventory control?
Inventory control is the process of managing the goods that are currently in a warehouse. This entails understanding your inventory inside and out, including how much is available, where it is located, and what condition it is in. It is also important to ensure that stock is stored efficiently, that inventory expenses are kept low, and that time spent counting and controlling inventory is kept to a minimum.
Which is more important, management or control?
Inventory management encompasses much more than control; it considers your supply chain, manufacturing, fulfilment, sales, and reporting. Before delving into control, almost any firm will need to implement an inventory management system. Otherwise, you won’t be able to manage suppliers, manufacturing, or sales.
Following that, there are several techniques for better keeping and marketing your items. It is entirely up to you whether you prioritize purchasing, control, production, or sales. For example, you could wish to design changes based on prior operational experience, such as modifying how you count stock. Alternatively, you may make changes.
What is the significance of inventory management?
Inventory management governs how you operate your company, serve your customers, and increase sales. Inventory management is critical for firms that sell items, ranging from small brewers to large wholesalers. Here are three important reasons why.
Maintain the efficiency of your business.
If your company does not effectively manage its inventory, it will rapidly fail.
Many small companies rely on manual stock counts to keep track of what’s in stock. However, stock counts are inconvenient and time-consuming, diverting attention away from the creation and sale of goods. As a result, it is critical to implement a system that does not require stock-takes in order to obtain correct statistics.
Keep your clients happy.
Inventory management determines how quickly you can deliver items to customers, how consistently you can fulfil orders, and how much visibility you can give your customers.
Customers are far more inclined to return for more if they know your company can regularly fulfil orders on schedule and inform them of what’s available. This is particularly true in business-to-business interactions. A missed deadline might be inconvenient for a customer. It might result in lost sales and revenues for a company.