Inventory is the goods or materials a business intends to sell to customers for profit. Inventory management, a critical element of the supply chain, tracks inventory from manufacturers to warehouses and from these facilities to the point of sale. The goal of inventory management is to have the right products in the right place at the right time. This requires inventory visibility — knowing when to order, how much to order and where to store stock. The basic steps of inventory management include:
- Purchasing inventory: Ready-to-sell goods are purchased and delivered to the warehouse or directly to the point of sale.
- Storing inventory: Inventory is stored until needed. Goods or materials are transferred across your fulfillment network until ready for shipment.
- Profiting from inventory: The amount of product for sale is controlled. First, finished goods are pulled to fulfill orders. Then, products are shipped to customers.
Inventory can be a company’s most important asset. Inventory management is where all the elements of the supply chain converge. Too little inventory when and where it’s needed can create unhappy customers. But a large inventory has its liabilities — the cost to store and insure it and the risk of spoilage, theft and damage. Companies with complex supply chains and manufacturing processes must find the right balance between having too much inventory on hand or not enough.
What are the types of inventory management?
Periodic inventory management
The periodic inventory system is a method of inventory valuation for financial reporting purposes in which a physical count of the inventory is performed at specific intervals. This accounting method takes inventory at the beginning of a period, adds new inventory purchases, and deducts ending inventory to derive the cost of goods sold.
Barcode inventory management
Businesses use barcode inventory management systems to assign a number to each product they sell. They can associate several data points to the number, including the supplier, product dimensions, weight, and even variable data, such as how many are in stock.
RFID inventory management
RFID or radio frequency identification is a system that wirelessly transmits the identity of a product in the form of a unique serial number to track items and provide detailed product information. The warehouse management system based on RFID can improve efficiency, increase inventory visibility and ensure the rapid self-recording of receiving and delivery.
Spreadsheets, hand-counted stock levels and manual order placement have largely been replaced by advanced inventory tracking software. An inventory management system can simplify the process of ordering, storing and using inventory by automating end-to-end production, business management, demand forecasting and accounting.
The future of inventory management
Globalization, technology and empowered consumers are changing the way businesses manage inventory. Supply chain operators will use technologies that provide significant insights into how supply chain performance can be improved. They’ll anticipate logistics costs and performance anomalies before they occur and understand where automation can deliver significant scale advantages.
In the future, these technologies will continue to transform inventory management:
Intelligent, self-correcting AI will make inventory monitoring more accurate and reduce material waste.
Internet of Things
Data from IoT sensors will provide insight into inventory location and status.
Disparate parties will be connected through a unified and immutable record of all transactions.
Intelligent order management
Supply chains will master inventory visibility with improved demand forecasting and automation.
Unprecedented computational power will solve previously unsolvable problems.
An inventory management system optimizes inventory levels and ensures product availability across multiple channels. It provides a single, real-time view of items, inventory and orders across all locations and selling channels. This enables businesses to carry less inventory on hand and frees up cash in other parts of the business. In addition, an inventory management system helps keep inventory costs low while delivering on customer expectations.