Inventory management, definition and importance.
Definition of Inventory Management
Businesses thrive on tools for its success ranging from accounting and bookkeeping tips, inventory management, branding, customer relationship management, etc. No tools are less important to another as each is needed or dependent on the other. On the other hand, some might come first before another, example, Inventory comes before accounting hierarchy….
Inventory means goods and material that a business holds for resale, production or utilization. Inventory management is a systematic approach to sourcing, storing and selling inventory. Simply put, it can be said to be how business owners control their business materials from when it is bought, stored and used. Inventory management helps businesses identify how much stock to order at a particular time. It tracks inventory from purchase to the sale of goods. The practice identifies and responds to trends to ensure there is always enough stock to fulfill customer orders and proper warning on shortage.
At a basic stage, inventory management works by tracking products, components and ingredients across suppliers, stock on hand, production and sales to ensure that stock is used efficiently and effectively.
3 Importance Of Inventory Management
Inventory management helps business owners how to run their businesses, serve customers and grow sales. For businesses based on selling products, managing inventory efficiently is important.
Runs Your Business Smoothly:
If businesses do not manage inventories well, it is likely to fall apart. Business owners need to match supply to customer’s demand. If supply is greater than demand, business owners will need an extra warehouse for storage which could end up cutting into margin. On the other hand if there is a shortage in raw materials, production will cease entirely until there is a restock. Small businesses often rely on manual stock counting to track what’s in store. Stock counting is not always accurate, time-consuming and not reliable. Therefore, putting a system in place that does not require manual stock taking for accurate figures is advised.
Keeps Customers Happy and encourages brand loyalty:
It dictates how quickly business owners can get their products to their customers, how reliable they can fulfill orders, and how much visibility they can give their customers. A one time buyer is likely to turn into a returning customer if they know a vendor can consistently deliver orders on time. This is applicable to business-business transactions. For a consumer, a missed deadline might an inconvenience, for a business it can mean lost sales or profit
Grow Your Business:
As businesses grow in complexity, should their inventory management. When new product lines are added, new staff are hired, new production facilities are opened and her customer’s database grows, the business materials and stock will get harder.
This is why it is important to get control over your physical inventory from day one if you plan on growing.
Inventory Management Software:
This is a cloud-based software system that allows businesses to handle the inward and outward flow of inventory items in a digitalized and systematic manner. Today’s businesses are drifting largely into the digital sector hence would prefer a software inventory management . From warehouse expense to precise and timely order fulfillment, effective inventory control influences every aspect of your organization. BrandDrive gives business owners the opportunity to manage their inventory. By tracking stock level in real-time, taking guesswork out of inventory control.
Methods of inventory management
Inventory management refers to the way you take account or track your company’s assets. Properly managing inventory is detrimental to your business because it allows you to determine when you should slow down on purchasing raw materials or when you need to restock shelves. Doing so can prevent you from spending unnecessary money. Here are some of the basic methods for inventory management:
- Just in Time (JIT) method: Under the JIT method, inventory is stalked just as it’s needed. In other words, only the exact number of needed products are delivered.
- Safety Stock method: This method keeps a small amount of extra inventory on hand in the event it’s needed.
- Economic Order Quantity method: This method means your company has the least amount of goods available. In other words, you have just the right amount to meet current demands without selling out or having too many goods or products on hand.
- Inventory management is the entire process of managing inventories from raw materials to finished products.
- Inventory management tries to efficiently streamline inventories to avoid both glutes and shortages.
- Two major methods for inventory management are just-in-time (JIT) and materials requirement planning (MRP)