Businesses of every size contend with keeping the availability of materials, components, products in sync with their rate of production and customer demand. Finding the balance between these factors is, at a high level, the core concept of inventory management.
What Is Inventory Management?
As a business digs deeper into the specifics of inventory management, it will refine its goals. This includes all the additional details that make the process more efficient. Suffice to say, good inventory management goes beyond the weight, dimensions, quantity, and location of items.
At a foundational level, your business will need a system of categorization to manage inventory. This also requires a means of interacting with this system when adding, removing, and identifying items.
Your system may require software and interactive technologies. These technologies can include computers, barcoding hardware, and scanners.
Knowing what you have in inventory and where is only one part of the equation. Forecasting demand to inform a business of when to replenish stock or when to buy more materials to manufacture those products is just as essential.
By ensuring that warehouse space is used efficiently and in sync with the rate of sales and replenishment, the cost associated with goods held in inventory is kept to a minimum.
In a broader sense, Inventory management is the component of your business’ supply chain that keeps material flowing into and out of your facility.
This is kept in accordance with production processes and customer demand.
Suppliers may experience fluctuations in the ability to fulfill PO’s and global events may shake up availabilities across the board. However, you can keep your own house in order with inventory management best practices.
For example, keeping a detailed record of products as they enter and leave your warehouse provides visibility your business needs. This ensures you are able to deliver on customers and supply chain partners’ requirements at any given time.
Businesses of every size use inventory management principles to manage their flow of goods. However, there is no defined set of guidelines that all businesses can look to for the answers.
The best inventory management strategies will change from business to business, but generally accepted best practices can be applied in almost every case.
Identifying the right set of guidelines for your mode of operation will ensure you are able to deliver the right goods in the right quantities to your customers at the right place and time.
The Difference Between Inventory Management And Inventory Control
While these terms may seem the same at face value, they are generally not considered interchangeable.
A strong inventory management system ensures a business can source, store, and sell materials or finished goods in such a way that yields a consistent and dependable profit for the business overall. Good inventory management is a sustainable practice.
Inventory management follows a structure of thought as a business principal. It is an overarching set of concepts that address a larger business model.
Inventory Control is housed, pun-intended, within the larger concept of inventory management. Inventory control is focused on maintaining visibility and understanding of the materials and their flow. Namely, where and how much inventory can be found on-hand and readily accessed in a retail location, stockroom or warehouse.
Why Inventory Management Is Important
Global supply chains are complex and in a state of constant ebb and flow.
Manufacturing processes that utilize raw materials and components are also changing continually according to customer demand, specification, and regulatory requirements.
In short, what is available today may not be available tomorrow. However, there are usually indicators of when a supply shortage may be looming or new regulations will be coming into effect.
Keeping up with these constant changes is more than simply difficult, it’s outright unnerving and even chaotic at times. Being stuck with an abundance of stock that can’t be used, spoils, or becomes obsolete can cost a considerable amount of capital, running a business well into the red. This is where the balancing act of inventory management becomes so critical.
The costs of carrying goods can be considerable. For this reason, many organizations seek to refine and optimize their methods for ensuring they have just enough material on hand to deliver on anticipated production levels or sales.
Streamlining inventory management will keep inventory levels low, which keeps costs sunk into stock on-hand to a minimum. Furthermore, lower stock levels will ensure less space is required to match material requirements to production levels. With less space required, facilities can be kept to a more manageable size and minimize warehouse leasing costs.
How You Can Implement Best Practices
Fortunately, for many decades, businesses have been refining how they bring stability to the unpredictable world of global supply chains, manufacturing processes, and inventory management.
As part of those efforts, two major philosophies of inventory management have emerged as the most widely accepted and utilized: Just-In-Time (JIT) and Material Requirements Planning (MRP). Both instances have their benefits and drawbacks. We go into more detail in dedicated articles on JIT and MRP inventory management strategies.
Technology And Software
Beyond JIT and MRP inventory management, there are a number of technologies and software that make the process of managing inventory easier on businesses, staff, supply chains, and customers.
ERP software is one such technology that delivers all the critical data needed to inform demand forecasting and purchasing, whether a business is based in manufacturing or wholesale and distribution.
Inventory management data housed within the ERP system is accessed and reported digitally, while also easily sharable for key stakeholders and managers to use in their decision-making processes.
About Encompass Solutions
Encompass Solutions is a business and software consulting firm that specializes in ERP systems, EDI, and Managed Services support for Manufacturers. Serving small and medium-sized businesses since 2001, Encompass modernizes operations and automates processes for hundreds of customers across the globe. Whether undertaking full-scale implementation, integration, and renovation of existing systems, Encompass provides a specialized approach to every client’s needs. By identifying customer requirements and addressing them with the right solutions, we ensure our clients are equipped to match the pace of Industry.