What is Inventory Management?
Inventory management, in the context of an industry, typically refers to the act of managing the material resources of an organization that can help the organization earn revenue in the future. Operations Manager is responsible for the managing part.
For example, a retail store that sells multiple goods (packed food items, groceries, clothes, and electronics goods, etc.) does not usually store all the goods in the store. In other words, a part of the entire stock of goods is kept at a warehouse. The sum of the goods in the store and at the warehouse at any particular point in time is known as the inventory.
Why is inventory management so important?
Organizations that are specifically into the production of goods or products heavily depend on a well-managed inventory for a number of reasons. The bottom-line is that an organization heavily into goods and products cannot really survive without a good inventory management system.
Let us take a look at the various reasons for having a good inventory management system:
Meeting demands steadily: Demands for specific goods and services will not be the same throughout the season. For example, the sale of air-conditioners usually peaks during the summer and goes down during the winter. A well planned inventory of goods will enable an enterprise to fulfill the demands- and it is well known that the key to earning revenue is the optimum capitalization of demands.
Continuity of operations: Sound inventory management will enable an enterprise to run its operations smoothly. For example, if an organization manufactures goods that are heavily dependent on raw materials, then the enterprise needs a good inventory of raw materials so that the operations are unhindered.
Economy of operations: A well managed inventory management system enables an enterprise to cut costs. For example, when the festive season is round the corner and the enterprise foresees a surge in demand for goods, it can procure goods in bulk and store them for the season. The main benefits of this exercise are that the enterprise can keep up with the demand and when it buys in bulk, and it will be eligible for discounts too.
What are the principles of inventory management?
The following practices can help an enterprise have a sound inventory:
Demand projection: This is a specialized skill. An enterprise must be able to project demands for specific goods and products at a specific time of the year. The enterprise must design its inventory system based on the demands.
Monitoring system: An inventory must have the mechanism of monitoring the amount of stock of goods at any point in time. The enterprise must be able to exactly find out the amount of inventory at any particular point in time.
Quality of warehouse: The warehouse must be able to keep the stock in good condition. Wasted materials amount to lost revenue opportunities.
Inventory management is therefore a challenge with most enterprises. In fact, much before an enterprise even begins its selling, the profit and loss can be partially determined by how well it is managing its entire inventory.