Inventory management, or the management of inventory, is the set of all those activities that are capable of containing the costs of managing stocks while maintaining a supply of goods that manages to meet all the needs of customers.
Essentially, when a company does not have adequate stocks of goods to satisfy everyone, it results in out of stock, which is the stockout.
This leads to losing customers and a decrease in turnover.
On the contrary, when a company has excess inventory, costs increase and there is a risk of storing goods in the warehouse for too long, which can lead to the product becoming obsolete.
Inventory is an important asset for the company regarding retail sales, manufacturing, catering, and other sectors that deal with large stocks.
How to manage inventory
Inventory management is a process that includes the processing of raw materials with the production of products and then ordering, storing, and selling the finished item.
Knowing when to restock inventory, how much is necessary to purchase or produce, what price to pay and then at what price to sell becomes a very complex process for the company.
Small businesses track their stock manually by determining the reorder quantities that are at risk of running out using an Excel spreadsheet.
Larger companies, on the other hand, use specialized software for inventory management.
Types of Inventory Management
Depending on the type of business conducted, a company can use various inventory management methods.
There are several types of inventory management, namely:
- Just-in-time management: just-in-time production is a type of management that allows companies to save large amounts of money and reduce waste by keeping only the inventory they need to produce and sell products. It has its pros and cons; the positives are that it can reduce storage and liquidation costs and thus eliminate excess stock. The negatives, however, if the demand increases unexpectedly, the manufacturer might not be able to procure the goods needed to meet the demand;
- Materials Requirement Planning: this type of inventory management involves planning for material requirements based on sales forecasts;
- Economic Order Quantity: This method is used by calculating the number of units that a company adds to its inventory with each order, so as to reduce the total costs of their inventory. The economic order model aims to ensure that the right amount of inventory is ordered to avoid waste;
- Days Sales of Inventory: this approach focuses on the financial ratio that indicates the average time in days that a company takes to turn its inventory into sales;
Therefore, inventory management involves controlling and overseeing purchases from both suppliers and customers, always monitoring the quantity of product on sale and the fulfillment of orders.
Why is inventory management important?
For businesses, inventory management is of great value and serves to enhance the efficiency and operations of any enterprise.
If effective, inventory management helps you:
- Reduce costs;
- Optimize production;
- Provide better customer service;
- Avoid losses due to theft, spoilage, and returns.
It provides information about a company's financial situation, customer behaviors and preferences, opportunities for products and business, current trends and future tendencies.
Advantages of Effective Inventory Management
If inventory is well managed, it brings several benefits to the company, including:
- Reduction of missed sales: when inventory is well taken care of by marking all stock items and ordering new products in time, you will have good inventory organization and fewer missed sales;
- Improvement in invested liquidity: to be successful in retail, it's important to invest by purchasing the right quantity of each product, enough to maintain sales and prevent stockouts;
- More accurate reports: when taking care of reports on essential products, the cost values are more accurate and there is no waste;
- Identification of problems more quickly: if you constantly keep an eye on your inventory, you will be able to immediately identify missing goods;
- Satisfied customers: if you manage an effective inventory, you will provide better customer service;
- Efficient reordering: reordering goods will be quick and easy if your inventory reports tell you which products are available. When working with accurate inventory numbers and a threshold limit is reached, you will be able to trigger a new purchase order to restock your goods and continue selling.
In conclusion, speaking in business terms, inventory management means an effective stock supply, that is, stock at the right levels, in the right place, at the right time and at the right cost and price. Il testo fornito è già in inglese e consiste solamente di tag HTML che non richiedono traduzione. Pertanto, il testo rimane invariato:
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