Inventory Management
What Are the Objectives of the Inventory Management System?
September 30, 2019

What Are the Objectives of the Inventory Management System?

What Are the Objectives of the Inventory Management System?

Does your business have an inventory management system?

Do you have all the right products available at the time of need?

For a company, keeping record and track of inventory, updating it and using the same data to track profits, needs and sales are very important but for a small business inventory management system can make or break the ability to keep up with sales and demand.

Do you lose any business due to items out of stock?

Do you lose any money due to excessive stock?

An inventory management system helps you to track and control the company's supply so that you can optimize your inventory and manage them without spending extra time and money.

The most integral part of the inventory management system is to evaluate your business on a regular basis to ensure your path towards success track.

What is Inventory Management?

Inventory Management is a technique through which stocked goods, inventories, and non-capitalized assets are kept in a proper manner according to their specific shape and placement.

An Inventory can be any item that a business holds to receive the goal of resale or repair.

Inventory Management is a process of ordering, storing, and using inventories. This stock management includes generating the lead on raw materials, components, and finished products, along-side warehousing and processing of such items in your company.

Inventory Management process

The available stock of inventories must be physically counted before it is put on the balance sheet.

Also Read: What Are the Functions of Inventory Management Software?

Inventory accounting is grouped into four separate categories:

  • Raw Materials - The raw material is purchased by any company for its production purpose to transform it into a finished good.
  • Work in progress inventory - refers to the process of transformation of raw material into a finished product.
  • Finished goods - these are the complete goods that are now ready to be available for sale.
  • Maintenance, repair, operation (MRO) goods - items used for support of the production of finished goods as they will be purchased from the distributor of future resale.

What is the principle of inventory management?

The basic principle of inventory management is to hold costs.

For example, the purchase of the hospital is the direct cost of materials with inclusive taxes.

Next is to control the investment amount for which there should be a balance maintained between purchase cost and carrying cost by procuring the products in optimum quantity, also known as economic order quantity.

What are the objectives of the Inventory Management System?

The investment put in inventory is very high, especially for those businesses that deal in manufacturing, wholesale, and retail trade.

The amount of investment might be sometimes more than the amount spent on other assets of the company.

Almost 90% of the working capital of a business is invested in inventories. The management should do proper planning on how to purchase, handle, store, and account with inventory management software.

The main aim of an inventory management system is to keep the stock in such a way that it is neither overstock nor understock.

The overstock condition will reduce the other production processes and understock will lead to stoppage of work.

The objectives of inventory management are operational and financial. In operational, materials and stock should be available in sufficient amount whereas, in functional, the minimum working capital should be locked in.

The objectives of inventory management are as follows:

  1. To ensure a continuous supply of materials and stock so that production should not suffer at the time of customers demand.
  2. To avoid both overstocking and under-stocking of inventory.
  3. To maintain the availability of materials whenever and wherever required in enough quantity.
  4. To maintain minimum working capital as required for operational and sales activities.
  5. To optimize various costs indulged with inventories like purchase cost, carrying a cost, storage cost, etc.
  6. To keep material cost under control as they contribute to reducing the cost of production.
  7. To eliminate duplication in ordering stocks.
  8. To minimize loss through deterioration, pilferage, wastages, and damages.
  9. To ensure everlasting inventory control so that materials shown in stock ledgers should be physically lying in the warehouse.
  10. To ensure the quality of goods at reasonable prices.
  11. To facilitate furnishing of data for short and long-term planning with a controlled inventory.
  12. To supply the required material continuously.
  13. To maintain a systematic record of inventory.
  14. To make stability in price.
Also Read: Basics of Inventory Management and Why It Is Important [Infographic]

What are the techniques of the Inventory Management System?  

Many businesses select one inventory management technique, and some prefer a unique blend of techniques, that best suits their particular needs.

However, what implements an integrated inventory management software to your business is Asset Infinity.

Nevertheless, the technique your business chooses to employ, it if does not have the ability to track, trace and account your inventory in real-time, anyhow it will run into trouble.

There are several inventory management techniques that you can use to manage, track, and analyze your production and sales system.

Inventory management system techniques

The three most common Inventory Management techniques are:

1. Just-in-Time (JIT) Delivery -

The Just-in-Time technique is a strategy to increase efficiency and decrease waste by receiving goods in the quantity as needed for the production process, thereby decreasing inventory costs.  

JIT delivery leads to reductions in costs and improves efficiency and profit margins in the following ways:  

  • Decreased inventory levels
  • Reduced labour costs
  • Fewer factory spaces
  • Stock reduction
  • Increased productivity
  • Improved quality
  • Reduced throughput times

2. ABC Inventory Analysis -

ABC Analysis allows you to characterize your product according to their requirement. A few of the product require more attention than others. In this add your product to each category as per their requirement list.

  • Category A - This includes the product of high quality with a low frequency of sales.
  • Category B - This includes the product of moderate quality with a moderate frequency of sales.
  • Category C - This includes the product of low quality with a high frequency of sales.

3.  Drop-Shipping -

Dropshipping technique is a retail fulfillment method where a store does not keep the finished products to sells in its stock.

Instead, when a store had to sell a product, it purchases the item from the third party, and it is shipped directly to the customer. As a result, the merchant never sees or handles the product.

If you feel you can know more about inventory management.

Also Read: The Definitive Guide to Asset Management & Tracking with NFC


A proper Inventory Management System must be used to manage stocks.

All inventory management has to do is to keep accurate records of items that are ready for shipment.

Inventory management is also important for keeping costs down while meeting regulation. Supply and demand are a delicate balance, and inventory management promises to ensure that the balance is undisturbed.

Frequently Asked Questions (FAQs)

1. What do you mean by Inventory Management?

Inventory Management is a process of ordering, storing, and using inventories. This stock management includes generating the lead on raw materials, components, and finished products, along-side warehousing, and processing of such items in your company. The available stock of inventories must be physically counted before it is put on the balance sheet.

2. What are the main objectives of Inventory Management?

The over and under the stock of inventory usually create the requirements of different types of inventory, a period of the stock, and cost associated with it. The main objectives of inventory management are:
- To supply the required materials continuously: The main objective of inventory management is to maintain the required inventory to run the production and sales process smoothly.
- To minimize the risk of under and overstocking of material: Inventory management manages to minimize the risk caused due to under and overstocking of the inventory.
- To reduce losses damages and misappropriation of materials: Inventory management aims to reduce or remove the losses of materials and stock, done by maintaining the proper stock of materials with utmost care.

3. What do you mean by economic order quantity?

Economic Order Quantity is an inventory management tool, which shows the quantity to be ordered each time that inventory cost. Normally, the ordering cost and carrying cost are equal at the point of economic order quantity. Thus, the economic order quantity is the quantity that minimizes the total inventory cost.

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