Stock inventory management is defined as the process of ordering , storing , using and selling of the inventories of a company . Managing the raw materials , components and finished goods and also taking care of warehousing and processing of such items falls under stock inventory management . Inventory management helps a company to identify what kind of stocks and in what quantity to order , tracking down the finished goods throughout the entire supply chain right from purchasing to end sales . In simple words , stock inventory management is the process of managing stocks and inventories from raw materials to finished goods .


There are many reasons underlying the importance of inventory management .Some of them are listed below :

  • Orders right on time – Inventory management enables speedy fulfillment of various customer orders right on time ensuring the company a steady and firm flow of more and more repeat orders that in turn attracts new clients and also can earn  goodwill for the company .
  • Insights on the inventories – It gives you statistics and analysis of the whole product cycle . These insights play a crucial role in taking big decisions regarding the whole business operations cycle for the betterment of the product along with the whole process .
  • Ensures a healthy cash flow – Inventory management is a must for small-scale businesses since they cannot afford large stocks of inventory due to financial constraints . It helps to control stock storage and economical use of your resources keeping in mind to keep a healthy cash flow .
  • Increased profits – A company without the inventory management system is likely to face a loss in their business due to lack of proper inventory monitoring system . But through inventory management proper utilisation of both financial resources and stock inventories are possible leading to adequate profits for the company .
  • Better strategies better sales – With proper statistical analysis through an inventory management system a company can form the strategies needed to increase sales and profits .
  • Optimal efficiency goal – Any business targets to reach the optimal efficiency . Inventory management system helps to understand which goods bring more profits and which investments would be cost effective which enables the company to reach the optimal efficiency goal .


There are four types of inventory management . Just – in – time management (JIT) , materials requirement planning (MRP) , economic order quantity (EOQ) and day sales of inventory (DSI) .

 1. Just-in-time management ( JIT ) 

This process allows companies to save significant amount of financial resources and reduce wastes by keeping only the inventory needed to produce and sell the products . JIT inventory management is very risky sometimes because when a case of high and unexpected demands occur , it may not be possible for the manufacturer to source the inventory needs to meet the demands leading to loss of face for the company in the market .

 2. Materials requirement planning ( MRP )

This inventory management system depends on the sales – forecast that means manufacturers should have the exact sales stats to plan accurately for inventory needs and also a proper communication of these needs with material suppliers in a timely manner .

 3. Days sales of inventory ( DSI ) 

It is basically a financial ratio that indicates the average time in days that a business enterprise takes to turn the inventory ( including the goods that are work in progress ) into sales . Days sales of inventory is also known as the average age of the inventory .

 4. Economic order quantity ( EOQ ) 

This type of inventory management is used to calculate the number of units a company has to add to its inventory with every batch in order to reduce the total costs of the inventory keeping in mind the constant consumer demand.


  • Choosing manual inventory process
  • Problems with overstocking
  • Expanding ranges in product varieties
  • Supply chain issues
  • Date inaccuracy
  • Outdated products
  • Limited visibility
  • Managing warehouse space
  • Increased competition
  • Loss in inventory
  • Lack of expertise
  • Inconsistent tracking


Q 1 .  What is an example of inventory management?

Let us take the example of soaps , the high consumption of soaps leads to reordering more raw materials to start manufacturing the next lot . Raw materials which were ordered beforehand act as the inventory and the already delivered finished goods are the inventory for retail units which will continue selling more soaps .

Q 2. What inventory method is the best?

The FIFO method is the most popular and the best method .

Q 3. What is the inventory formula?

Average inventory = ( beginning inventory + ending inventory ) / 2

Inventory turnover ratio = COGS / average inventory

Q 4. What is an inventory checklist?

It is a record of all the items stored in a particular area or department of a company. It helps in organizing and tracking the finished goods in an organized way.

Q 5. How do you keep track of stock inventory?

Following are the steps to track stock inventory

  1. Designate someone to be responsible for the inventory management
  2. Select a well established inventory management system
  3. Determine how often it is required to run inventory
  4. Roll out your inventory tracking equipments
  5. Auditing of inventory tracking should be done on a regular basis