Every business enterprise aims to generate income by selling. Some prefer to do this by producing the goods they will sell, while others apply directly to the buy-sell method and do not bear the production costs. In both cases, businesses have to have some assets in order to sell and continue the production process in a healthy way. The process, which begins with the decision to incorporate these assets into the business, must be properly managed so that overall efficiency is sustained. At this point, a concept emerges Inventory management.
What is Inventory Management?
“What is inventory management?” Before answering the question, it is useful to look at the meaning of the word that forms the basis of this concept. The word inventory, which comes into our language from French, is used to express two related issues in the business world. The first of these is related to accounting and refers to the detailed studies to determine the current indebtedness or creditor status of the company with its property, money, and other assets.
The other way of using inventory is more for operational processes. It covers the entirety of raw materials, intermediate parts, and ready-for-sale goods used by the enterprise for production. After defining this, now “What does inventory management mean?” Let’s look for an answer.
This concept determines how the procurement and storage processes of the materials that a company needs for production or the products it wants to sell directly. In addition to these, manufacturing is examined under this heading. Herein lies the difference between stock and inventory management, which are often confused with each other. Inventory management includes production stages. However, the same cannot be said for stock management. You can learn how to carry out these processes more effectively when selling online, from our content titled What You Need to Know About Stock Tracking in E-commerce.
How to Manage Inventory?
How the inventory management will be done may vary depending on the size of the company in general terms. While this process can be carried out with manually taken notes and order entries in businesses with smaller business volumes, it is necessary to resort to electronic methods at higher levels. For larger structures, the first system that comes to mind may be Excel tables arranged for this job. However, it is not difficult to guess that this will not be enough after a point. Therefore, it would be better for companies with a corporate structure and business processes involving too many components to use inventory management software. In this way, steps such as production and storage processes and forecasts for demands can be carried out much more easily.
What are the Basic Features of Effective Inventory Management?
An effective inventory management system is a complex structure consisting of many different features. These features are:
Inventory Control: Inventory control, which enables operational processes to continue smoothly, can be considered the most important part of inventory management. Because the regular follow-up of the material or product quantities at hand facilitates the determination of the orders that need to be placed for both production and sales. Similarly, accumulating more inventory than necessary causes storage costs to increase. You can find more detailed information on this subject in our content titled Stock Control Methods You Can Use in E-commerce.
Delivery Management: Incorrect management of the inventory process may result in delayed deliveries. This inevitably leads to a negative result, such as a decrease in customer satisfaction. By creating an effective inventory plan, delivery problems are identified and resolved.
Planning and Forecasting: Successful management of inventory processes makes it possible to anticipate needs such as opening new warehouses and to take forward steps in a healthier way. As it can be understood from here, storage and inventory management are two subjects in close contact with each other. If you have difficulty in positioning your products while selling online, How to Organize Storage Space Efficiently in E-commerce? Check out our article on the subject.
Reporting: Reporting is of great importance in inventory processes. Because these inventory reports are extremely functional in taking a clear picture of the current situation of the business and ensuring that the decisions are taken care of on the ground.
What are Inventory Management Models?
The management of the said process is done using different inventory models. The four most popular models are:
- Economic Order Quantity (EOQ): The primary purpose of this model is to minimize inventory costs. It is based on the idea of calculating the amount of unit product or material that each order should contain.
- Stock Production Quantity: It can be compared to a more advanced version of the EOQ model. The main difference between the two is that the stock demand is partially or fully met by the supplier. In the stock production quantity model, these demands can be partially met.
- ABC Analysis: In this model, the materials needed are divided into three groups, A, B, and C, according to their priorities. Thus, it becomes possible to use your workforce and resources more efficiently.
- Instant Management (JIT): It is a model that aims to keep stock close to zero. Materials are supplied only when needed. From this point of view, it can be said that besides reducing the costs seriously, it also carries some risk.
It would be wrong to state that any of these models is superior to the others. Because factors such as the sector in which the business operates or the way the operations are managed determine which model is ideal for that company.
What are the Benefits of Inventory Management?
Inventory management brings many important benefits to companies when it is carried out in line with its objectives. We can list these benefits as follows:
- It reduces costs.
- It simplifies time and workforce management.
- Increases sales.
- It reduces the risk of overselling, which can be a problem for some virtual marketplaces.
- It makes it possible to prevent human-induced problems.
- It makes reporting processes more practical.
Investing in inventory management may seem like a risk at first. However, as you can get out of the advantages we have mentioned, such an investment will return to your business as benefits and profits over time.
Why Is Correct Inventory Management Important?
Proper management of the inventory process ensures cost reduction and more efficient use of all resources of the company. Apart from these, he can mention another detail that makes this process important. It is to meet customer demands with the most accurate timing. Proper inventory management ensures that products meet the customer exactly when they are needed. This is directly reflected in the sales figures.
Who Should Do Inventory Management?
Businesses at all levels must manage their inventory to keep their operations more organized. At this point, the important thing is how and with which tools the process will be carried out. For example, while small businesses can handle the process with simpler and less-invested methods, more complex organizations need to make large investments.
How Does the Inventory Management System Process Proceed?
The inventory management process begins with the planning and preparation step. After this stage, in which a general framework of the process is drawn, the warehouse inventory counting begins, in which the current stock situation is determined. This process is usually done by warehouse staff. Afterward, it is time to transfer the products and materials in the warehouse to the required locations. In this context, the materials in question can be transported to factories to be used in production, as well as the final products can be taken to stores for sale. This step is characterized as the post-production phase of the inventory management process. Finally, the reporting phase is completed for the evaluation and accounting of the operation.
What is Inventory Management Process Strategies?
Some strategic touches enable the said process to be continued more efficiently. Practical inventory management strategies include:
- To set up warehouses at suitable points, ideally
- To closely follow the current status of materials and products and the transportation processes
- Grouping the items that make up the inventory
- Using cloud-based software developed for these processes, if possible
It would not be wrong to say that the programs designed for inventory management are used more and more every day. Developments in this direction also offer important clues about the future of these management processes.
What is the Future of Inventory Management?
We can foresee that inventory management will be carried out mostly through programs and automation systems in the coming period. Integrating inventories into software through methods such as barcoding or RFID will also make this process easier to control. From here, the subject can also be connected to the e-commerce sector. While working in this sector, which can be interpreted as the future of trade, the infrastructures of the sales sites can be connected with inventory systems. Thus, it is possible to establish an end-to-end control mechanism.