What is Inventory Management
Essential Tips for Effective Inventory Management
What is Inventory Management? The importance of inventory management cannot be stressed enough, especially for eCommerce and online retail businesses. Accurate inventory tracking allows your business to fulfill orders timely and accurately. We have created this guide to help you improve your inventory management when it comes to your supply chain and operations management.
- Inventory management involves ordering, stocking, and using a business’s materials or products.
- There are various types of inventory, like raw materials, cycle inventory, and maintenance, repair, & operations (MRO) goods.
- Prioritizing your inventory management helps you understand what you need to order or manufacture to meet customer demand.
Importance of Inventory Management
Inventory management is a crucial piece of any business’s profitability. It outlines how you can run your business, grow your sales and serve your customers. Managing your inventory is vital for companies that are based on selling products. An automated warehouse management system that doesn’t require manual stocktaking can allow for more accurate product counts that are instantly available for your customers.
Additionally, inventory management allows you to build better relationships with your customers because it will tell you exactly how quickly you can fulfill an order. Promoting consistency, in turn, will make customers more likely to return to your business because they know they can deliver their orders on time, especially regarding business-to-business transactions. Effectively managing your inventory can help your company grow.
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Types of Inventory Management
When it comes to supply and demand, there are many different types of inventory a business owner needs to know. Understanding the different types of inventory can help you better manage, plan, and budget. It can help you meet marketplace demand and succeed as a business.
- Raw Materials, or materials used to manufacture products.
- Unfinished Product is a product that is not ready to be sold.
- Finished Products are items that are usually stored in a warehouse until sold and shipped.
- In-transit goods are items that are being shipped to their final destination.
- MRO goods, which stands for maintenance, repair, and operating supplies, these items support the production process.
- Cycle Inventory is products shipped to a business from a supplier or manufacturer, then sold to customers.
- Anticipation Inventory is an excess of products in anticipation of increased sales.
- Buffer Inventory, or “safety stock,” serves as a cushion in case of an unexpected issue or need for an increase in inventory.
- Decoupling inventory, parts, supplies, or products set aside in anticipation of a slowdown or halt in production.
Tips for Managing Inventory
Here is a list of essential tips to effectively manage your inventory for increasing profitability and cash flow.
Prioritize you inventory
Categorizing your inventory into priority groups can help your team better understand which items they need to order more and how frequently they should order them.
Track all product information
Keep product information records for items in your inventory. Include information like SKUs, barcode data, suppliers, lot numbers, and countries of origin. Additionally, it would help if you considered tracking the cost of each item over time, so you are aware of any factors that would cause a cost change.
Practice the 80/20 inventory rule
As a general rule, 80% of your profits come from 20% of your stock. Therefore, you should prioritize the inventory management of this 20% of your products. Additionally, it would be best if you understood the sales lifecycle of these products. Including how many you sell in a week or a month. These are the money-making items you don’t want to fall short on your product inventory.
You need to understand all aspects of your inventory and sales. On a daily basis, analyze the data on how many items you sold and update your inventory totals. Understanding the broader scope of how your items sell is essential to keeping your inventory under control.
Analyze your suppliers’ performance
An unreliable supplier can cause problems for your inventory. It would be best to have a supplier you can count on to avoid being habitually late with deliveries or frequently shorting an order. If supplier issues persist, you should be prepared to switch partners, or you could be hurting your ability to manage your inventory levels which could hurt your business in the long run.
Benefits of Inventory and Supply Chain Management
Cost Savings: By streamlining any inventory management processes, you can eliminate inventory costs associated with human error. Automation means a business can reduce excess and obsolete inventory and any costs incurred by that stock in space consumption or warehouse fees.
Better Inventory Planning and Ordering: For online sellers overselling can be a significant issue. Striking a balance between supply and demand is highly vital for businesses; hence, inventory management provides aid in better planning and ordering of items. You don’t want to have a huge demand for a product and not enough material on-hand to supply it. An inventory management system allows your warehouse managers to refresh inventory only when needed.
Profitable Business Decisions: Using the data from an inventory management system can allow you to make more data-driven business decisions with a better-informed understanding of your supply chain and the products in demand. It can also help with forecasting sales trends.
Accurate Order Fulfillment: With an effective inventory management system or a third-party logistics (3PL) partner, you will be able to easily track your warehouse stock. Your business will no longer have to worry about overstocking, stocking obsolete products, or understanding. Allowing you to focus more on what can drive your business forward.
Inventory is a crucial aspect of any business model. It is critical for many small and large business owners to understand the significance of regularly tracking your inventory. Companies can achieve their business goals with a strategic plan that optimizes the process of overseeing and managing inventory.
Let’s get started! Contact Lile Relocation Services now to learn more about our comprehensive inventory and asset management services. Contact us at 888-507-6304 or fill out our online commercial services quote form to speak with a logistics specialist.