Inventory management is an important term in the procurement business. It’s vital for keeping a company’s operations up and running, and it’s also critical for ensuring customer satisfaction.
In this article, we’ll discuss the steps involved in inventory management and how your business can benefit from administering it effectively.
How Does Inventory Management Work?
While the exact tasks involved will vary slightly from company to company, inventory management follows a general process :
1. Ordering inventory
In order to keep production moving, companies need to have a steady supply of raw materials and supplies on hand. This step involves working with suppliers to place orders for the necessary items.
Examples include:
- Raw materials and parts (manufacturers)
- Already-finished goods for resale (distributors)
- Indirect supplies that support a company’s daily operations but are not required for production (all types of businesses)
2. Receiving inventory
When inventory arrives at a company’s facility, it must be checked for accuracy and quality. This step is important to ensure that the company receives what it ordered and that the materials are in good condition.
3. Storing inventory
Once inventory has been received and checked, it needs to be stored in an appropriate location. This may involve putting items into a warehouse, stockroom or other storage area. To make the process of managing them easier, many businesses assign their products stock keeping unit (SKU) codes and tag them for digital tracking.
4. Monitoring inventory
Physical inventory counts need to be conducted on a regular basis, in addition to whatever automated inventory management measures are in place as long as items are in storage. This helps to minimise the risk of stockouts, dead stock, missed or duplicated orders, and risk exposure from theft and fraud.
5. Orders are placed and fulfilled
Customers place orders for products, which must then be fulfilled. In some cases, this will involve retrieving items from storage and shipping them to the customer. If a company uses just-in-time inventory management, orders may also be placed with suppliers at this stage to ensure that raw materials are on hand when they are needed.
The Benefits Of Effective Inventory Management
There are several benefits to having good inventory management practices in place:
Reduced costs: By keeping track of inventory levels and avoiding stockouts, businesses can reduce their overall costs. This includes the cost of purchasing excess inventory, as well as the cost of lost sales due to unavailability.
Increased profits: Good inventory management helps companies to sell more products and increase their profits. By ensuring that products are available when customers want them, businesses can avoid lost sales and boost their bottom line.
Improved customer satisfaction: When customers can’t find the products they want, they will be unhappy. By keeping inventory levels up-to-date, businesses can make sure that their customers can always find what they’re looking for. This can lead to increased customer satisfaction and loyalty.
Enhanced efficiency: Good inventory management helps businesses to streamline their operations and become more efficient.
The process of inventory management is an important one, and therefore necessitates a number of different steps in order to be executed properly. By understanding the process and its implications, as well as by instituting helpful tools like inventory management software, businesses can ensure that their inventory is well-managed and that they are reaping the full benefit.
