We know every business is not complete without inventory. When there is inventory, management of inventory is also important. So, in this blog, we will know what is inventory management, why it is considered very crucial for business & what are famous business inventory management techniques effective for business! Let us begin!
What Is Inventory Management?
Inventory management is the systematic approach of managing, selling, and storing inventory (raw material and final product).
For effective business inventory management. It is important that you maintain inventory at the right level in the right place at the right time at the right cost.
Inventory management is important for all industries it does not matter in which sector they are. Inventory plays an important role in all businesses specifically manufacturing, retail, e-commerce, etc.
What Are the Techniques You Can Use for Business Inventory Management?
Techniques you can use for business inventory management are as follow:
1. Prioritizing with ABC Analysis
A shopping mart contains varieties of products some of them are expensive some of them are not. Obviously, anyone would want to finish their expensive stock first. So, in this technique, the stock is divided into 3 categories such as:
- High expensive products - These types of products have a slow-selling tendency.
- Semi-expensive products - These types of products have a moderate selling tendency.
- Low expensive products - These types of products have a fast-selling tendency.
High expensive products need care regularly and they should be in a place where customers can see it. Lots of businesses find this technique effective.
2. Regular Count & Audit
Regular inventory count is vital, it can assist you better in knowing the exact number through which can lead to a conclusion that in next how to order how much quantity shall be increased or decreased. Regular counting can save your business from overstocking or understocking.
According to the website Retail Wire, “Overstocks and out-of-stocks cost retailers $1.1 trillion globally in lost revenue. Overstocks are responsible for 3.2 percent in lost revenue for the average retailer, and out-of-stocks, 4.1 percent."
It is estimated that just north America loses $123.4 billion annually due to overstocking.
3. First In First Out (FIFO)
This technique is one of the oldest techniques for managing inventory. FIFO approach works on simple chronology whichever comes first goes out first! It should be implemented strictly products which can be expired or become obsolete such as foods, vegetables, etc.
4. Set Re-Order Level
For each product, you can set the re-order level as per the industry. For setting a re-order level you can take a specific number whenever the stock goes below that defined number. You will have to re-order. However, you will have to keep check proactively.
Some product finishes quickly some takes time. But you need to figure out when the team demands more stock than how much time it takes to get back in stock. You will have to do some research to execute this technique efficiently.
Or you can implement inventory tracking software that will simplify the process and you will have to keep track manually.
Why Inventory Is Important?
Inventory is important in business in many ways it can be your end product or necessary ingredient of the end product. It has a direct connection with your business bottom line. There should be a perfect balance in your stock. In clear words, inventory should neither be overstock or nor low on stock. Because these situations are not good for business.
You may ask, why?
Here is an example suppose a clothing company bough too many dresses (inventory) which is in current fashion but a after few months winter comes and all these dresses will be not useful in winter so nobody will buy anymore.
As a result, loss in the company's bottom line. Furthermore, when you have excess inventory, it will take more space. Your product may have an expiry date or get damaged.
Here is another example,
A company bought a very limited number of dresses then the customer purchased quickly all stock is finished. By the time the manager of the company comes to know, many of his customers are lost already and more will be lost until stock arrives. As a result, potential customer loss and overall business loss.
That is why it is required to maintain a perfect balance between overstock and low stock in your warehouse. For this purpose, business inventory management or inventory control is very important. It will provide you control over your inventory you will not lose any customer due to product unavailability issue. You will also be able to figure out which inventory is selling quickly and which is not selling!
How to Control Inventory?
Controlling inventory means getting greater visibility over your inventory stock. You can control inventory by two methods.
- Manually - Manual process has its pitfalls such as human error, information sharing is complex and every transaction accounted for. There are more chances of inaccuracy which will only decrease productivity.
- Automatic - By automatic we mean using inventory management software. It will be more effective as there is less human involvement. Other than his you can utilize a barcode scanner which will be more effective especially in managing inventory. It can assist you in location tracking of inventory. When you have inventory management software in place you do not have to worry about when inventory refilling orders shall be given. Because whenever the stock goes below a defined level it will alert the team and they will order for refilling stock process.
Inventory is crucial to managing a business successfully. If the inventory is not taken care of properly or managed inefficiently, it can affect business in a bad way. That is why business inventory management is important. However, either you can do it manually or automated. We recommend you to use inventory management software. It will be more effective when inventory managing techniques.
Frequently Asked Questions (FAQs)
1. How inventory management in business can help your business in saving money?
It can minimize expenses, better stock handling, increased customer satisfaction, avoid loss from theft, spoilage.
Inventory management can also provide statistics that can help you make better and effective financial decisions. Data and analytics can also help you figure out future trends, customer behaviors that can help your business.
2. What are the different types of inventory are there?
There are many types of inventory are there such as finished goods, raw material, work-in-progress, MRO (maintenance repair operation), etc.
3. What is inventory loss?
When a product is bought for the selling purpose but the product is not sold that is inventory loss. Inventory loss can also happen due to theft, misplacement or damaged inventory, etc.