Inventory management (or inventory) is the process of planning, organizing, controlling and supervising all aspects related to the stock of goods or materials owned by a company or organization. Inventory can cover a wide variety of items, such as finished products, raw materials, production components, parts, tools, or even merchandise.
The goal of inventory management is to optimize the availability of goods, while minimizing the costs and risks associated with having too much or too little stock.
Good inventory management can help companies achieve operational efficiency, minimize inventory costs, increase customer satisfaction through timely delivery, and minimize the risk of unavailability of stock or expired goods. Check out the following TransTRACK article for more details!
What is the Role of Inventory Management in Business?
Inventory management plays a very important role in business, especially in the daily operations and sustainability of the company. Following are some of the major roles that inventory management plays in a business:
Inventory management helps avoid over-purchasing or understocking, which can result in wasted costs or lost sales opportunities. By optimizing the right stock levels, companies can reduce inventory costs and improve operational efficiency.
Fulfilling Customer Requests
By having the right inventory, companies can ensure that they can meet customer demands quickly and accurately. This increases customer satisfaction and strengthens the company’s brand image.
Increase Production Efficiency
Good inventory management helps in managing the timely supply of raw materials and production components, so that production lines can run without interruption and production can be carried out efficiently.
Avoid Lost Sales
By ensuring the availability of the right items, companies can avoid losing sales opportunities due to out of stock or unavailability.
Product Lifecycle Management
Inventory management helps in dealing with changes in demand or product life cycle. Companies can better manage stock to avoid stockpiling of outdated or degraded products.
Improve Financial Predictions
With accurate data on inventory, companies can perform better forecasting and financial planning, helping reduce the risk of cash shortages or wastage of capital.
Optimizing the Use of Warehouse Space
Inventory management ensures that warehouse space is used efficiently, avoiding over storage or chaos in the warehouse.
Improving Procurement and Supply Processes
By having accurate inventory information, companies can run procurement and supply processes more efficiently, collaborate with suppliers, and speed up procurement cycles.
Risk Control and Security
Inventory management assists in identifying potential risks, such as loss or theft of goods, and taking steps to improve inventory security and control.
Supporting Business Decisions
Accurate and up-to-date inventory data plays an important role in making smart business decisions, whether in terms of inventory management, pricing policies or business expansion.
All in all, inventory management is a critical element of running a successful and sustainable business. By managing stock properly, companies can increase efficiency, reduce costs, and increase customer satisfaction and business profits.
Main Benefits of Inventory Management
The following is a further explanation of each benefit of Inventory Management:
Centralized Data Storage
By using an inventory management system, data regarding inventory of goods or materials is stored centrally and can be accessed easily. This makes it easier for teams involved in inventory management to track and manage stock more efficiently.
Inventory management helps in controlling the proper level of stock so that it is not too much or too little. By optimizing inventory levels, companies can avoid excessive carrying costs or lost sales opportunities due to out of stock.
By having the right information about inventory, companies can manage procurement, production and distribution processes more efficiently. This helps in reducing wasted time and resources, increasing overall productivity.
By ensuring sufficient stock of goods, the production team can work without interruption and can achieve optimal productivity. There are no obstacles in the production process due to lack of materials or components.
Good inventory management helps companies avoid over-purchasing or understocking, which can result in wasted costs. By optimizing inventory, companies can save on inventory costs and improve operational efficiency.
Increasing Customer Satisfaction
With effective inventory management, companies can meet customer demands more quickly and accurately. This increases customer satisfaction because they get products or services according to their expectations.
Accurate Forecasting & Planning
With accurate inventory data, companies can make more precise demand forecasting and production planning. This helps reduce the risk of understocking or overstocking, and helps companies better respond to market changes.
Overall, inventory management plays an important role in optimizing business operations, reducing costs, increasing efficiency and increasing customer satisfaction. By using an effective inventory management system, companies can better manage inventory and achieve greater success in a competitive business environment.
Inventory Management Method
Here is a brief explanation of each method:
Economic Order Quantity (EOQ)
EOQ is a method used to calculate the optimal order quantity for inventory taking into account the ordering cost (order cost) and holding cost (holding cost). The main objective of EOQ is to achieve a balance point between ordering costs and holding costs, so that the total inventory cost is minimized. EOQ considers factors such as demand levels, ordering costs, holding costs per unit, and lead time in calculating the optimal order quantity.
Material Requirement Planning (MRP)
MRP is a production planning and inventory control system that is used to manage the supply of raw materials and components needed in the production process. MRP uses information about production schedules, customer requests, and lead times to produce the right order schedule. By using MRP, companies can manage stocks of raw materials and components more efficiently, minimize excess inventory, and avoid stock shortages that can hamper the production process.
Just-in-Time is an inventory management philosophy that aims to reduce inventory to almost zero, while ensuring that goods remain in stock when needed. In a JIT system, goods are ordered and received only when needed for the production process or to fulfill customer requests. The goal is to avoid high storage costs, improve production efficiency and quickly identify quality problems. JIT relies heavily on close collaboration with suppliers and efficiency in the supply chain.
Days Sales of Inventory (DSI)
Days Sales of Inventory (DSI) is a method of measuring how long inventory lasts on average before being sold out or sold out. DSI is calculated by dividing total inventory by average daily sales. This metric helps companies understand how efficiently they are managing inventory and how quickly they can turn inventory into revenue. By reducing the DSI, companies can increase inventory turnover and optimize the use of capital.
Each inventory management method has its own advantages and limitations, and its application will depend on the type of business, goals and specific needs of the company. A combination of methods or special adaptations may also be required to achieve optimal inventory management according to specific business situations.
As an integrated logistics service, TransTRACK offers an innovative and sophisticated technology platform to help you manage your inventory effectively. By combining intelligent predictive algorithms, real-time data analysis, and deep analytical capabilities, Logistic Service Integrator provides in-depth insights into your supply cycle.
By using the Logistic Service Integrator, you can carry out accurate inventory planning, minimize the risk of understock or overstock, and improve overall operational efficiency. In addition, this platform allows you to monitor real-time stocks and collaborate with suppliers directly, ensuring the availability of materials or products on time.
Optimize your inventory and increase your competitive advantage with TransTRACK’s Logistic Service Integrator. Be the leader in inventory management, now!