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Steps to successful inventory management

Whatever the size and structure of your organisation, inventory management is key to drive efficiencies

What is inventory management?

Inventory management refers to the practices and processes used to control goods throughout the supply chain, from raw materials through to finished goods. Inventory management includes various activities such as:

  • Reviewing stock holding levels
  • Minimising costs of handling the goods at various points in the supply chain
  • The planning, manufacturing, and processing of the goods
  • Identification of bottlenecks within the process
  • Assessing and managing current and future stock requirements
  • Improvements in service levels for internal and external customers and inventory visibility in supply chains

There is no best approach to inventory management as this depends on various factors. There are many techniques available:

  • Just-in-Time
  • Economic Order Quantity
  • Economic Production Quantity
  • Material Requirements Planning
  • Vendor Managed Inventory

The most suitable approach is determined by current and future supply/production arrangements.

The key to successful inventory management is to capture accurate data throughout the operational process, ensuring stock is available when required and ensuring the right quantities are ordered.

 

What are the steps to the successful application of inventory management?

Whatever approach you take to manage your inventory, there are some common steps that will help you make it a success.

  • The manufacturer informs the distributor how many items are sold. This can be captured by barcoding and scanning technologies, then passed to the distributor.
  • The distributor processes the information, provides details of quantities, product descriptions, delivery dates and destinations, then releases the goods.
  • The manufacturer replenishes the distributors stock.
  • The distributor invoices the customer, and the customer sends payment.
  • For large customers, you may want requirements to be transmitted directly to the manufacturer
 

What are the types of inventory management?

There are four main types of inventory management.

These are:

Just-in-Time management: This is where goods are ordered and received as they are needed. It’s used to reduce inventory costs and reduce waste in the supply chain.

Material requirement planning: This is a software-based supply management system where the computer predicts the timings and quantity of materials needed to complete a production process.

Economic order quantity: This helps organisations determine the amount of inventory to order to meet demand and minimise inventory costs.

Day sales of inventory: This method is a financial ratio metric that identifies how much time it takes for the organisation to turn its inventory. 

 

What is the future of inventory management?

Organisations must maximise efficiency and minimise costs throughout the whole supply chain to stay ahead in the competitive market. Advanced technologies are transforming inventory management, and often come with higher levels of efficiency and accuracy. Customers are often demanding faster deliveries, and cloud-based solutions and artificial intelligence help to meet customers demands quicker. Cloud-based solutions allow organisations to track inventory in real time and can accessed securely from anywhere.

For more information on procurement technology, visit our dedicated section here: Procurement Technology

 

Advantages and disadvantages of inventory management

Whatever inventory management technique you decide to go for, it must suit the needs of your organisation. Each have their advantages and disadvantages, but the common ones are listed below.

Advantages:

  • Good inventory management optimises the supply chain and increases resilience
  • Effective inventory management minimises the chances of lost sales and stock not being available
  • Costs can be reduced, and operational metrics improved by eliminating non-value-added activities

Disadvantages:

  • Effective inventory management can be expensive, depending on the structure of your organisation
  • Inventory management can be complex and time consuming.
  • There is no complete elimination of risk. This is due to supply failures, fluctuations in inventory levels and technology failures
 

What is operations management?

Operations management is a key area within any organisation. It plays a key role in keeping supply chains operational in today’s challenging environment. Discover the key to success when thinking about operations management. Find out more about Operations Management

Operations management key themes

Inventory Types & Costs Just in time Advantages disadvantages Obsolesence
Lean manufacturing Vendor managed inventory Warehousing Warehousing management

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