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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 .
IMPORTANCE OF INVENTORY MANAGEMENT
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 .
TYPES OF INVENTORY MANAGEMENT
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 .
CHALLENGES FACED IN INVENTORY MANAGEMENT
- 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
- Designate someone to be responsible for the inventory management
- Select a well established inventory management system
- Determine how often it is required to run inventory
- Roll out your inventory tracking equipments
- Auditing of inventory tracking should be done on a regular basis