Worried About Optimum profit by Managing Inventory accurately? Focus on Inventory Management Techniques.
Before switching to Inventory Management, understanding what inventory actually means is the first point of discussion as once aware of the parameters, and importance of inventory, learning about its management becomes easy and for some self-explanatory.
What do you mean by Inventory?
Inventory is defined as stock, products ready to sell including store of goods, items, merchandise, and packaging materials, in short, all raw materials used to make products that are held by a business for selling in the market to earn a profit.
Thus for businesses at every scale once knowing the basic meaning of inventory, the very first thought that comes to mind is to earn an optimum profit, What quantity of Inventory should we possess? For any business managing cash flow, improvement in sales and thus gaining knowledge about the products, methods, and processes become a prioritized task to boost profit.
This discussion on Inventory Management comes as a highlighted point. Let us begin with Inventory Management and its techniques.
What do you mean by Inventory Management?
Inventory Management is the technique of maintaining the inventory size at the optimum desired level keeping in mind the best economic interest of an organization.
Thus Inventory management consists of:
- Keeping track records of stocks -
- Keeping track records of their cost.
- Keeping track records of demands.
Balancing between too little and too much and keeping track of inventory is the necessary process that is done by Inventory Management.
Thus we can say that Inventory Management is all about the management of stock for any business in such a way that supply meets demand by helping to manage the right stock at the right time, manage multiple warehouses, and multi-channel sales, and track shipments.
Discussion on Inventory management now develops an interest to know its importance, as in that What actually would be the problems that are faced if Inventory management is not done properly or not implemented.
Importance of Inventory Management
By managing inventory well you can
- improve cash flow
- Increase sales
- Boost Profit
If Inventory Management is not implemented properly many problems leading to degradation of the revenue may arise.For example:
Imagine you are running a company where you don’t have a system implemented that keeps records of products ready to sell along with raw materials required to manufacture that product. Neither it has a record of knowing the number of products and raw materials that it should possess nor does it possess analytical reports stating which products and raw materials for manufacturing can be categorized as premium ones generating the highest revenue. Inability to manage these records and thus inventory too keeps the business blindfolded of key point actions important for maintaining the highest profit.
The loss in profit is surely going to happen because of running out of stock or overstock, investing in wrong products due to lack of knowledge about the classification of products based on revenue generation, lacking control over stock volume, incapable of optimum utilization of resources by not implementing a proper Inventory Management system.
Thus a proper implementation of the management process for inventory is the critical point that should be implemented into business even on a small scale as a manual method of such management is impossible and if anyhow implemented it consumes unnecessary time along with human error data.
Thus with no doubt in mind investing in an Inventory Management System instead of sparing time and money on the manual processes is only the best solution available.
Proper selection of Inventory Management System leads to the following processes at ease:
- Protection against fluctuations in output
- Better use of men, machines, and material
- Protects against fluctuations in supply
- Control of stock volume
- Control of stock distribution
- Maintain inventory accuracy
- Effective use of working capital is possible
- Manages planning and forecasting by analyzing data trends
- Helps to manage demand forecasting
There is a lot that goes into inventory management, and it has a massive influence on the outcome of your business.
Implementing inventory management reduces error, making your company more effective, more productive, and better prepared to support your customers.
A thought now that comes to mind is How actually Inventory Management works?
How does Inventory Management Work?
Now we know that it is actually the Company’s Inventory that is the most valuable asset. Implementing Inventory Management System into business, its proper and exact working is also important as now we will be dependent on data-driven by the system.
Inventory Management implemented in business keeps track records of
- When to restock inventory?
- What amount to purchase or manufacture?
- What price to pay?
- When to sell at what price?
- Understands the stock levels and stock location in warehouses.
- Tracks the flow of products or raw materials to manufacture products from suppliers.
- Stock receipt, picking, packing, and shipping in warehouses
Inventory Management Techniques
Keeping all Inventory management points in mind various techniques are designed and implemented. Some techniques use formulas and analysis while some rely on the procedure. The main aim of all methods is to improve accuracy. The techniques a company should use and implement depend on its needs and stock.
Various Inventory Management Techniques are designed keeping in mind some of many following Inventory control points;
- Annual consumption Value.
- The unit value of consumption.
- Criticality of the inventories.
- A pattern of issues from stores.
- Technology deciding when to order products or raw materials?
- Availability of items
- Value of Inventory of material actually held in stores at a given time.
Keeping these Inventory Control points in mind, various Inventory Management Techniques that are designed are as below:
- A-B-C Analysis
- X-Y-Z analysis
- V-E-D analysis
- F-S-N analysis
- ABC-XYZ analysis
- FSN-XYZ analysis
- H-M-L analysis
- S-D-E analysis
- S-O-S analysis
- G-O-L-F analysis & many more.
Based on the needs of the type of Inventory Control in your business choose Inventory Management techniques wisely.