Understanding Inventory Management

Inventory Management is quite simply, the efficient processes used to oversee the flow of stock coming into and leaving, a company’s inventory. Stock includes finished and semi-finished products as well as raw materials produced by a company. If implemented correctly, these processes will serve to reduce a company’s outgoing expenditures while simultaneously increasing revenue. The goal should be to ensure that production, sales, and service are maintained at costs which are affordable to a company. The costs incurred by inventory can exacerbate losses and may even lead to the failure of a business.

To determine the amount a company will spend on inventory management requires first calculating what percentage of a company’s total assets constitute inventory. It should be noted that the amount and importance of inventory varies from industry to industry. For example, automobile dealers have extremely high inventories which can be as high as 50% of a dealer’s total assets while in the hotel industry, inventories may only approximate, 2% to 5%.

Inventory management also requires careful planning, including creating and implementing procedures and appointing staff who can competently carryout all assigned tasks and who fully understand all governing procedures.

Inventory management begins at either the point when raw materials, semi-finished products, and other supplies are ordered; or when production begins.

For example, for a retailer, the process starts when an initial order is placed with a wholesaler.
Following placement of an order and before the ordered items have been received, there is a short window of time, during which a company can implement an management plan. Through planning, the company can create a well maintained record of all items, supplies, and materials in inventory. The amount and size of these require the company to either set aside space or obtain storage, to house its in inventory.

However, in the case of larger orders, a company will have to acquire space needed to store inventory, a factor which could increase the company’s overhead.

Additionally, Inventory Management techniques requires the use of business documentation, including invoices and purchase orders. To facilitate maintaining accurate records of items, supplies and materials ordered, actually received and subsequently, shipped out, there are several software programs available in the marketplace.

There are firms that offer inventory management programs which enable implementing and maintaining control over all aspects of a company’s inventory. They provide information about Inventory Management, Inventory Management Software, Supply chain Inventory management, Inventory Management Systems, and much more.

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