Posted in Operations and Supply Chain Terms, Total Reads: 4759
Definition: Inventory Management
Inventory Management is a business process which is responsible for managing, storing, moving, sorting, arranging, counting and maintaining the inventory i.e. goods, components, parts etc. Inventory management ensures that the right inventory is available as per the demand at low costs. Inventory Management makes sure that the core processes of a business keep running efficiently by optimizing the availability of inventory.
Inventory Management includes managing and controlling raw materials, stocks, finished goods, warehousing, storage and other aspects which help reach the product from production to distributor or retailer. Each organization regularly strives on efficient inventory management to uphold optimum inventory to be able to meet its necessities and avoid over or under inventory that can impact the monetary statistics of the firm.
Inventory is forever dynamic. A prerequisite of inventory management is steady and vigilant assessment of exterior and interior factors and control via planning and evaluation. Most of the businesses have an individual department of inventory planners who incessantly observe, control and evaluate inventory and interface with manufacturing, procurement and finance sections of the firm.
In a business or association, all the functions are interlinked and coupled to each other and are time and again overlapping. Some key features like supply chain management, logistic handling and inventory management form the spine of the business delivery function. Therefore these functions are very significant to the managers.
Inventory Management example
Inventory Management is very important for a business to run smoothly. Imagine a cake manufacturing shop if it keeps running out of flour and sugar. Flour and sugar are like the main raw materials which keep the business process running. The cake maker needs to plan the quantities of sugar and flour so that he never runs out of them when he wants to make a cake. But inventory management is just not about bulking up the supplies. If too much flour and sugar are stocked and there is not as much demand for cake, the flour and sugar would go bad which would cause financial losses to business. Inventory Management advocated optimization of inventory. The inventory management makes sure that the cake maker has almost the exact amount of sugar and flour which are just enough to make cakes which match with the demand of cake eaters who order cake from his shop.
Inventory management parameters
Inventory management can be efficiently done on the basis of 4 broad parameters:
Number of units in the stock
Cost of managing inventory
Availability of inventory on time
Location for storing inventory
Challenges of inventory management
1. Understanding the Inventory –Organizations should take a holistic view into knowing both basic vs. non-basic matter and at what time they should be ordered. Basic items are those that you sell ant time of the year and need incessant replenishing of stock. By sorting these out from non-basic or seasonal items inventory levels can be much more allied with a recognized schedule and product lifecycle. However, knowing your items are is just the first step. One must have knowledge about stock capacity, what is going to be ordered, the size of the order, and what needs to be refilled.
2. Incompetent Processes – Built on or rely on dated software or manual processes are used for inventory management systems. This creates an extremely demanding work setting for anybody caught up in the inventory management process. One must begin with a review of current standard operating procedures and settle on where gaps may lie in the systems.
3. Client Demand – Customers needs are varying daily and they are looking to their distributors to allow for elasticity in orders. With the mounting demand of struggle it becomes more taxing to keep up with the exclusive needs of the consumers to reassure they do not have those needs met by some other firm. All these factors help in understanding inventory management.
What is an Inventory?
Inventory is an inactive stockpile of material goods that posses financial worth, and are held in a variety of forms by an organization in its guardianship until stuffing, dispensation, alteration, use or sale in a prospect point of time.
Any organization which is into manufacturing, trading, sale and repair of a product will unavoidably hold stock of a range of physical possessions to assist in future utilization and sale. While inventory is a necessary evil of any such business, the organizations cling to inventories for various reasons; some of them are speculative purposes, functional purposes, physical necessities etc.
• All organizations occupied in fabrication or trade of products keep inventory in one form or the other.
• Inventory can be in whole state or unfinished state.
• Inventory is held to assist in future use, sale or further value accumulation.
• All inventoried resources have profitable value and can be measured as assets of the firm
Hence, this concludes the definition of Inventory Management along with its overview.
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