Inventory management, in the context of an industry, usually refers to the material resources management that can help the company generate revenue in the future. The person responsible for this part of the management is the Operations Manager.
For example, a retail store that sells various items, such as a grocery store or department store (such as packaged food, groceries, clothing, electronics, etc.) does not usually stock all products in the store. Part of the products is kept in a warehouse or storage. We call inventory the sum of products in the store and in the warehouse.
Why is inventory management so important?
Companies that act as manufacturers or assemblers, focused on producing goods, depend heavily on a well-managed inventory for several reasons. In the end, a company that depends on production cannot survive without a good inventory management system.
Let’s look at some good reasons for keeping a good inventory management system:
Consistently meeting the demand
Demand for specific goods and services will not be constant throughout the year. For example, the sale of air conditioners has peaks during the summer and goes down during the winter. Clothes also present a very seasonal demand, light ones in the summer and heavy and warm ones during the winter. A well-planned inventory will allow the company to satisfy the demand – and we all know that the key to increasing revenue is a full demand satisfaction.
Continuity of operations
Careful inventory management will allow a company to run its operations seamlessly, with continuity. For example, if an organization manufactures products that depend on raw materials, it is clear that the company needs a good stock of raw materials so that operations run efficiently.
Economy in operations
A well-managed inventory management system allows a company to cut costs. For example, when the holiday season arrives and the company anticipates an increase in the demand for some products (such as chocolate just before Easter or toys for Christmas), it can buy the merchandise in larger quantities beforehand, negotiating better prices, and store them for the season. The main benefits of this practice are that the company can satisfy all the demand and that buying in larger quantity planning it beforehand allows them to negotiate very good discounts.
What are the principles of inventory management?
The following practices can help a company to have a well-managed inventory:
This is a specialized skill. A company must be able to predict demands for specific products at a specific time of the year. The company must create and support its inventory system based on real and anticipated demands. Learn more about demand forecasting.
An inventory must have a mechanism for monitoring the quantity in inventory, at all times. The company should know exactly how much inventory at any time.
The warehouse must be able to keep the stock in good condition. Waste such as obsolescence, breaks and thefts generate lost opportunities and revenues.
Inventory Management is, therefore, a challenge for most companies. In fact, even before a company begins its sales, its profit or loss can be partly explained by how well the company can manage its inventories.