Guide to Inventory Management

Inventory undoubtedly is among your company’s most valuable assets. Your inventory includes raw materials and components as well as finished goods. And like all assets, it requires proper management to realize its full value. Without effective management, inventory can become a liability, resulting in lost revenue, disappointed customers, and wasted materials.

What is inventory management?

Inventory management is an aspect of supply chain management. It is the process of tracking, storing, and stocking inventory and inventory components from manufacture to sales. Proper management ensures that you have sufficient inventory at the right place and time when required before it expires.

How does inventory management work?

The inventory management process is complex and requires precise record-keeping and attention to detail. It has three major stages: purchasing, storing, and profiting from inventory. It begins with tracking the acquisition of an item and following its shipping and storage at various locations such as warehouses and retail stores. The process ends at the point of sale. 

However, the details highly dependent on your industry. If your inventory is perishable, such as that of food retailers, it will look very different from that of a clothing retailer. And that will be even more different than a building materials company.

By the same token, there will be variability between online retailers and other types of eCommerce and brick-and-mortar locations. However, most businesses use software solutions to help them manage inventory.

What is inventory visibility?

Inventory visibility allows tracking stock levels in real-time to evaluate inventory availability and accurately locate specific units within a warehouse, fulfillment center, or transit route. At the back end, inventory visibility gives you the information you need to make critical decisions. On the customer-facing side, your clients can easily see item location and availability to make purchasing from you easy.

Inventory visibility has many advantages. 

• Increases efficiency by saving time searching for data

• Helps ensure inventory levels meet but do not exceed demand.

• Informs customers how much of a given item you have and where it is so they can make better choices.

• Helps you manage customer expectations. 

Why is inventory management important?

Good inventory management is important for many reasons. From financial to environmental, best practices can improve outcomes for your business.

Reduces waste

When inventory levels are in line with need, you have fewer items expiring before they can be used. With inventory forecasting, you can accurately predict proper stock levels.

Creates positive customer experiences

With proper inventory management, you’ll always have what your customers need on hand and where they need it. You can also integrate inventory data across channels to improve inventory visibility for your clients.

Maximizes revenue

Proper inventory management means you’re using your resources wisely, which improves your bottom line and facilitates positive cash flow.

Improves forecasting

If you know what you need, where, and when for the week, the month, or the year, you can more accurately predict your future needs. Accurate demand forecasting means success across the board.

Types of inventory management

There are many types of inventory management. Once again, the right fit for you will depend on whether you are a large or small business, the nature of your industry, and other factors unique to your situation.

Periodic inventory management

Periodic inventory management is a system in which inventory counts are done manually at regular and specific intervals. With this system, you might tally your inventory monthly, quarterly, or annually. Because of the manual nature of this system, it is more suitable for smaller businesses with limited inventory.

Barcode inventory management

Barcode inventory management systems use visual scanner technology and an inventory management system to track inventory. Typically, this system uses a handheld device to scan a unique code on each item and a cloud-based software solution. This efficient and accurate system saves a lot of time over manually counting and entering numbers into spreadsheets or systems.

RFID inventory management

RFID inventory management is a perpetual inventory system that uses Radio Frequency Identification (RFID) tags, RFID readers, and inventory management software to track inventory in real time. This system can be highly accurate and effective. However, it is more expensive, more difficult to scale, and more dependent on specific technology than other systems.

Inventory management methods

There are four common inventory management techniques.

1. Just-in-time management (JIT): This method delivers inventory, typically finished goods, to locations on an as-needed basis. Essentially, it arrives just in time! 

2. Materials requirement planning (MRP): MRP ensures that raw materials and components are on hand to complete manufacturing projects as needed.

3. Economic order quality (EOQ): Companies using EOQ manage inventory in ideal quantities based on specific calculations. With this method, you balance how much you spend, how much you will make, and how much it costs you to hold inventory. 

4. Days sales of inventory (DSI): This method calculates the average number of days it takes for inventory to convert into sales. It essentially measures your sales efficiency.

Key features of inventory management

The key features of inventory management include the following.

Inventory Tracking: This is the cornerstone of inventory management. Inventory tracking records how much you have and where the items are located.

Inventory Record Keeping & Reporting: By keeping records of what you needed, what you acquired and purchased, you can analyze how effective you have been in the past.

Inventory Forecasting: Using past data, you can predict what inventory you will need in the future. This helps you save money, meet customer demand, and fill orders.

What is an inventory management system?

An Inventory Management System is a software tool for tracking, managing, and optimizing inventory management. An IMS can consolidate your inventory data, maximize inventory visibility, and streamline management processes.

A robust system can do much more than tell you what you have where at a given time. Look for a system with automated workflows that help you maintain appropriate inventory levels, increase efficiency, and minimize waste.

The best systems integrate seamlessly with your other business tools, such as your CRM and POS.

Inventory management red flags

Inventory management can raise red flags in two ways. They can signal to you that your practices are not where they need to be. A wise business owner will use that data to improve. However, other inventory red flags can signal to investors that your company is having issues.

Frequent overstock: Excess inventory means you are ordering too much. This happens when you inaccurately forecast customer demand and the amount of inventory you need.

Frequent understock: Understocking inventory means you are not keeping enough on hand. This leads to shortages and popular items being out of stock. The causes of understocking are inaccurate forecasting, failing to appropriately identify reorder points to restock, or underestimating the lead time required to manufacture or receive goods.

Obsolete inventory: Obsolete inventory is a dead stock that cannot be sold because of spoilage or because it has otherwise expired. This could mean food going rotten or inventory no longer in season.

Inaccurate data: This happens when your systems reflect incorrect inventory information. This can be the result of poor record-keeping or ineffective warehouse management.

The future of inventory management

With technology constantly improving, the future of inventory management lies around  innovation around AI and machine learning.

Inventory management is a big job. Freshservices is here to help. Click here to see what we can do to help you with this critical business function.

Freshworks: Your Partner for IT-Powered Inventory Management

Optimum inventory management applied to your IT estate can improve ITAM. Improved ITAM can improve the cybersecurity of the entire IT estate and the delivery and management of IT and business services. A more secure, well-managed IT estate can lead directly to additional improvements in inventory management.

Utilizing an IT service desk software such as Freshservice streamlines your inventory management processes. With Freshservice, your team can efficiently establish, execute, and maintain workflows for inventory handling. This ITSM solution empowers teams not just to oversee various inventory benchmarks worldwide, but also to utilize automated functions for addressing inventory discrepancies and generating reports on inventory performance.

Discover how Freshservice can enhance delivering IT services, allowing your employees more time to focus on high-impact projects. It ensures broader adherence to inventory management standards while maintaining consistent service quality.