Inventory Management – Inventory Management Definition | Inventory Management 101

Inventory Management

Inventory management is the building block on which every business hinges on, and helps in the business delivery function. It is one function that is very important to marketing managers and finance controllers.

What is Inventory Management?

It is a system that tracks a company’s stocked goods by monitoring their weight, dimensions, amounts, as well as location. The main aim of inventory is to reduce the cost of holding inventory by intimating business owners on the right time to re-stock products or purchase more materials to have them manufactured.

How Important is Inventory Management?

Here are some reasons why inventory management is ideal for any company that wants to succeed in meeting the demands of its customers and for the overall well-being of the company;

Every organization that wants to succeed by not over-stocking or under-stocking needs inventory management. This is because it essential for ensuring a business does not run out of stock in meeting customers’ demands. If not properly handled, inventory management, can either result in a business losing money on potential sales, which can’t be filled or wasting money by over-stocking inventory.

Saves you Money By:

Below is how Inventory Management can save you money.

Avoiding Spoilage

Products that have an expiry date, needs their stocking quantity to be properly handled. This is because if you overstock without making the right inventory of the right quantity you need, it might go bad if not sold on time. With inventory, you will know the right quantity to stock.

Helps you Avoid Dead Stock

By deadstock, we mean stocks that can no longer be sold, maybe because it has expired or is out of season, out of style or maybe it has become irrelevant. Managing your inventory well, helps you avoid stock that will stay in your hands.

Helps you Save on Storage Costs

You would have to pay for storage for your products and the warehouse is known to have a variable cost. Warehousing fluctuates depending on how many products you have stored up. If you store too much at once or end up with a product that is difficult to sell, your storage costs will invariably go up.

It Improves Cash Flow

Factoring inventory into your cash flow management directly impacts sales, by dictating (how much you can sell) and expenses (how much you have to buy). Once you know how much you can sell as well as buy, both of these elements will factor heavily into how much cash you have on hand.

Types of Inventory Management

Inventory management can be grouped into four categories. They are:

Raw Materials

Raw materials are items used in the manufacturing of components or finished products. It may be items directly produced by your business or one purchased from a supplier.

Work-in-progress Inventory

Work-in-progress inventory refers to unfinished items moving through production but not fully ready for sale.

Finished Goods

These are products that the production process has been completed and are ready for sale.

Maintenance, Repair, & Operations (MRO) Goods

These are items that are used to support as well as facilitate the production of finished goods. These items are mostly consumed as a result of the production process but are not a direct part of the finished product.

 

 

 

 

 

 

 

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