Inventory Management


Today we will discuss what is inventory management and inventory, its various definitions given by different authors, its objective, its importance, different techniques and method of inventory management, and important software used for inventory management.

Inventory management is very important for a company’s health. Effectively managed inventory is considered a symbol of a successful and stable company. It is the entire process of managing inventories from raw materials to finished products.

It helps business organizations, especially those working in the manufacturing sector to maintain a sufficient amount of stocks or inventory so that they overruled the possibility of stockouts and the high cost of inventory maintenance.

► What is Inventory Management?

Inventory management is defined as the entire process of managing inventories which cover from raw materials to finished products.

It covers many processes like ordering, storing, using, selling and accounting for a company’s inventory. It is a crucial step to efficiently streamline inventories to avoid both excess and shortages of inventory.

Inventory management involves many tasks like the management of raw materials, components, finished products, warehousing, and processing of these items.

It aids businesses to identify which and how much stock to order at what time and ensures tracking inventory from purchase to sale of goods.

◉ Inventory Meaning

Inventory refers to the physical stock of a company’s raw materials, components, finished goods, or products that a company sells or uses in the production process. In accounting, inventory is treated as an asset.

◉ Definition of Inventory Management

Inventory management is defined as a continuous process of supervising the flow of goods from raw material supplies to manufacturers to warehouses till the point of sale.

It is also responsible to keep a detailed record of each new or returned product as it enters or leaves a warehouse or point of sale.

Inventory management is considered the backbone of all business organizations whether it is small or large businesses. Inventory management uses many techniques to track the flow of goods and also tell the correct amount, place, and time.

It is also concerned with minimizing the total cost of inventory while maximizing the ability to provide customers with products in a timely manner.

► Inventory Management System

Inventory management software systems generally began as simple spreadsheets that track the quantities of goods in a warehouse but have become more complex since.

Inventory software can now go several layers deep and integrate with accounting and enterprise resource planning (ERP) systems.

The systems keep track of goods in inventory, sometimes across several warehouse locations.

Inventory management software can also be used to calculate costs — often in multiple currencies — so accounting systems always have an accurate assessment of the value of the goods.

Some inventory management software systems are designed for large enterprises and can be heavily customized for the particular requirements of an organization.

Large systems were traditionally run on-premises but are now also deployed in the public cloud, private cloud, and hybrid cloud environments.

Small and midsize companies typically don’t need such complex and costly systems, and they often rely on standalone inventory management products, generally through software as a service (SaaS) applications.

► Objectives of Inventory Management

The important objective of managing inventory is as follows-

  • To ensure material availability to keep production on track.
  • To ensure an adequate supply of finished goods.
  • To ensure timely availability of accurate goods to customers.
  • To minimize wastage during all stages of production.
  • To promote the sale.
  • To ensure cost-effective storage of inventory.
  • To ensure effective and accurate inventory accounting.

► Importance of Inventory Mgmt

  • It helps the organization to cater to the volatility of demand and supply raw materials and finished products.
  • It helps to minimize the wastage of inventory during the production and storage stages.
  • It ensures the continuous production of products.
  • It ensures the timely availability of raw materials and finished products.
  • It aids in accurate planning and forecasting.
  • It helps companies to maintain buffer stock by tracking real-time inventory levels.
  • It helps in eliminating unnecessary storage costs of excessive inventory and raw materials.
  • It helps in finding the correct location for the establishment of an industry.
  • It ensures an increase in sales and high profit.
  • It helps in purchasing raw materials and components at a lower cost.
  • It helps businesses strike the balance between being under and overstocked for optimal efficiency and profitability.
  • It ensures optimum utilization of working capital and cash flow management.
  • It increases customer experience and customer loyalty.

► Types of Inventory Management

There are major 6 different types of inventory:

  • Raw Materials
  • Work-In-progress (WIP) Inventory
  • Finished Goods
  • Decoupling Inventory
  • Safety stock
  • Packing materials Inventory
  • Cycle Inventory
  • Buffer Inventory
  • Transit Inventory
  • Maintenance Repair and Operations (MRO) Inventory
  1. Raw Materials – It is all the items that the business uses to manufacture finished products.
  2. Work-In-progress (WIP) Inventory – It is all the materials that the factory has started working on, but the product isn’t quite finished yet.
  3. Finished goods inventory – All the items ready to be sold by the factory after production.
  4. Decoupling Inventory – It is an extra raw material that is set aside during the manufacturing process that can be used during some stages of a production line or low stock or break down situation to operation continue.
  5. Safety stock – It used during emergency requirement
  6. Packing materials Inventory – It is used in the packing of finished goods. It includes cans, bottles, boxes, foil, film, paper, etc.
  7. Cycle Inventory – It is also known as working stock. It refers minimum inventory that the company needs to continue its operation.
  8. Buffer Inventory – It is the surplus stock used in case of uncertainty
  9. Transit Inventory – It is also known as transportation and pipeline inventory. It is a finished good that has been shipped by the seller but has yet not been received by the buyer.
  10. Maintenance Repair and Operations (MRO) Inventory – It is essential to keep your factory operational and functional smoothly.

► Techniques of Inventory Management

The important technique of inventory management are-

  1. Just-in-time management (JIT)
  2. Materials Requirement Planning (MRP)
  3. Economic order quantity (EOQ)
  4. Days sales of inventory (DSI)
  5. ABC analysis

► Top 10 Inventory Software

  1. Katana — inventory management software for manufacturers
  2. Cin7 Orderhive – inventory mgmt software
  3. Upserve — restaurant inventory software
  4. Zoho inventory — inventory management software
  5. Square — POS (point of sale) system
  6. — inventory control software
  7. Spocket — Manage dropshipping inventory
  8. Ordoro – e-commerce inventory management
  9. inFlow – B2B Companies
  10. Megaventory – Manage Manufacturing inventory