What is Inventory Management?
Inventory management uses technology to track products and goods from the manufacturer to warehouses to store shelves to the customer.
Why inventory management is good for everyone.
The goal of inventory management is to track the flow of products or goods throughout the supply chain. By doing so, you can minimize the amount and cost of inventory in the chain at any given time by reducing the time it spends on shelves. and product time on shelves. It helps predict when and how much product must be manufactured to replenish products being sold. This is often called just-in-time (JIT) inventory management. And it is beneficial for everyone in the supply chain—from the manufacturer and warehouse to retail stores and their customers.
The Goldilocks goal of managing inventory.
Whether you are a mom-and-pop retail store or a global goods manufacturer, the goal of inventory is not too little, not too much, but just right. Too much inventory and your product is in the back room doing nothing. Too little inventory and you risk running out, and customers can’t find your product to buy it.
Tracking from raw materials to customers and back.
With real-time tracking, intelligent inventory management and IoT technologies, manufacturers can not only track their goods all the way from manufacturing to customer sale, customer sales can inform the manufacturer of low store inventories. That can trigger the automated procurement of the raw materials needed to manufacture a new batch of product. Which of course will replenish retail shelves—just before the stores run out. Inventory management now goes full circle.
10 Types of inventory companies manage
1. Raw Materials
Raw materials are the materials a company uses to create and finish products.
2. Components
Components are similar to raw materials except that they remain recognizable when the product is completed, such as a screw.
3. Work In Progress (WIP)
WIP inventory refers to items in production and includes raw materials or components, labor, overhead, and even packing materials.
4. Finished Goods
Finished goods are items that are fully manufactured or produced and ready to sell.
5. Maintenance, Repair and Operations (MRO) Goods
MRO is inventory—usually supplies—that supports making a product or maintenance.
6. Packing and Packaging Materials
Packing materials are the materials used to protect a product, label a product, or bulk packaging for protection during transport.
7. Safety Stock and Anticipation Stock
Safety stock is the extra inventory a company buys and stores to cover unexpected events like unforeseen sales spikes.
8. Transit Inventory
Also known as pipeline inventory, transit inventory is stock that’s moving between the manufacturer, warehouses and distribution centers. Transit inventory may take weeks to move between facilities.
9. Theoretical Inventory
Also called book inventory, is the least amount of stock a company needs to complete a process without waiting. It’s used mostly in production and the food industry.
10. Excess Inventory
Excess inventory is unsold or unused goods or raw materials that a company doesn’t expect to use or sell, but must pay to store.
Inventory management systems
So how do you manage all of that inventory? Inventory management systems of course. In their infancy, these systems were nothing more than hand-populated spreadsheets tracking products in a warehouse. Today they can be powerful AI- and IoT-powered software applications that touch every part of the manufacturing, distribution, accounting, and sales. They can be turn-key SaaS applications or highly customized ones specifically architected for an organization’s unique requirements. And they can be run on-prem or in public, private or hybrid cloud environments.
Building an inventory management system
When deciding upon your inventory management system, it is best to collaborate with your IT team, an inventory management software application provider, and a systems integrator. Decide whether you are looking for a turnkey solution, something modular that you can add on to as you grow, or something completely custom.
Whichever way you choose, achieving more efficient and effective inventory management will result in a more efficient and effective business.