Inventory management is the process of overseeing and controlling the ordering, storage, and use of materials and products in a company or organization. This includes monitoring stock levels, determining reorder points, and scheduling deliveries to ensure that materials and products are available when needed, while also minimizing unnecessary costs and waste.
There are several different types of inventory management methods, including:
First-in, first-out (FIFO): This method assumes that the oldest items in inventory are sold first.
Last-in, first-out (LIFO): This method assumes that the most recent items added to inventory are sold first.
Average cost: This method calculates the average cost of all items in inventory and assigns that cost to each item.
Specific identification: This method tracks inventory by assigning unique identification numbers to each item.
Just-in-time (JIT) inventory: This method involves ordering and receiving materials and products just in time to meet demand, rather than maintaining a large inventory.
Economic order quantity (EOQ): This method helps to determine the optimal order quantity that balances the cost of ordering with the cost of holding inventory.
Reorder point: This method sets a specific inventory level at which a company reorders product.
Kanban: This method uses a pull system, where production is based on actual demand and not forecasted demand.
These are some of the commonly used types of inventory management methods, however, different industries and businesses might use a combination of methods that suit their need.
Inventory management can bring several benefits to a company or organization, including:
Cost savings: By managing inventory effectively, a company can reduce unnecessary costs associated with storing and maintaining excess inventory, as well as costs associated with stockouts or backorders.
Increased efficiency: Inventory management systems can help streamline processes and improve efficiency throughout the supply chain.
Improved customer service: With accurate inventory management, companies can ensure that products are available when customers want to purchase them, leading to improved customer satisfaction and loyalty.
Better forecasting: With accurate inventory data, companies can improve their forecasting abilities, which can help them anticipate future demand and adjust production and purchasing accordingly.
Better decision-making: Inventory management systems can provide real-time data and inventory analytics, which can help managers make more informed decisions about production, purchasing, and other areas of the business.
Better inventory turnover: Inventory management can help companies reduce the number of slow-moving items and increase turnover, which can result in more sales and improved cash flow.
Better supplier relationship: By implementing the inventory management system, a company can reduce the lead time, increase the efficiency, and better communication with the suppliers.
Overall, effective inventory management can help companies improve their bottom line, increase customer satisfaction, and make better business decisions.
The inventory management process typically involves several key steps, including:
Setting inventory policies: This involves determining how much inventory to keep on hand, how often to reorder, and how to handle stockouts or excess inventory.
Tracking inventory: This involves monitoring stock levels in real-time, using tools like barcoding, RFID, or manual counting, to ensure that inventory data is accurate and up to date.
Managing inventory: This involves using the data collected through tracking to make decisions about purchasing, production, and other aspects of the business.
Reordering inventory: This involves placing orders for new inventory when stock levels fall below a certain threshold.
Storing inventory: This involves ensuring that inventory is stored in a safe and secure location and that it is easily accessible when needed.
Monitoring inventory performance: This involves monitoring the inventory turnover, inventory carrying cost, and other metrics to evaluate the performance of the inventory management process and adjust as needed.
Communicating with suppliers: This involves communicating with suppliers about delivery schedules, lead times, and other issues related to inventory management.
Managing returns and damages: This involves managing the process of returning or disposing of damaged or unsellable inventory.
Analyzing inventory: This involves analyzing inventory data to identify trends and patterns and make decisions about how to improve the inventory management process.
These steps are not necessarily in a linear order and some steps might be combined or omitted depending on the type of inventory, the industry, and the company’s specific needs.
In every aspect of the business processes mentioned, IoT/RFID can be implemented in a short period of time to remove inefficiencies and bottom-neck issues due to limited resources providing the needed capacities.
Autonomous and unmanned solutions are essential to overcoming these raising challenges in Inventory management for all industries.