Introduction to Inventory

robot carrying boxes inside an automated warehouse
Inventory is a company’s inventory of raw materials or finished items held in the ordinary course of events. Raw materials (any resources used to manufacture completed items), work-in-progress (WIP), and final goods (those that are ready for sale) are the three general types of inventory.

Introduction to Inventory

Inventory is a company’s inventory of raw materials or finished items held in the ordinary course of events. Raw materials (any resources used to manufacture completed items), work-in-progress (WIP), and final goods (those that are ready for sale) are the three general types of inventory.
robot carrying boxes inside an automated warehouse

Inventory is a form of an asset on a company's balance sheet, and it serves as a barrier between production and order processing, as previously mentioned. When an item in inventory is sold, its carrying cost transfers to the revenue statement's cost of goods sold (COGS) category.

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What is Inventory?

Inventory is a form of an asset on a company’s balance sheet, and it serves as a barrier between production and order processing, as previously mentioned. When an item in inventory is sold, its carrying cost transfers to the revenue statement’s cost of goods sold(COGS) category
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Understanding Inventory

Inventory is crucial to a company’s commercial activities since it often acts as a critical income-generating source. It is sometimes regarded as the phase between production and customer service. Regardless of how inventory is characterized and categorized, it is ultimately inventory management that directly impacts a company’s product delivery capacity. Businesses, for example, acquire critical data that impacts their future procurement and fulfillment operations by keeping account of raw resources, safety stock, finished products, or even packaging. The frequency with which organizations must refill inventories and which things are prioritized for repurchase are determined by analyzing consumption patterns and the pace at which products sell. Knowing this can help enhance customer interactions, cash flow, and profitability while reducing money lost due to squandered inventory, excess inventory, and replenishing delays.

Optimizing inventory is an essential aspect of managing inventory that considers supply and demand fluctuation. Inventory optimization is a series of techniques for businesses that seek to save money while keeping their inventory sellable. It reconciles investment restrictions with company goals and fulfillment objectives over many actual inventory units.

There are three techniques to value inventory. These are the methods:

First-In, First-Out (FIFO)

The first-in, first-out (FIFO) technique states that the cost of goods sold is defined by the cost of the first materials purchased. The price of the most recently purchased commodities is used to calculate the overheads of the remaining inventories.

Last-In, First-Out

The last-in, first-out (LIFO) approach asserts that the cost of goods sold is determined by the cost of the most recently purchased materials. In contrast, the most recently purchased materials determine the available stock price.

Weighted Average Method

The weighted average method entails appraising inventories and COGS using the average price of all purchased materials.
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two people with hard hats talking inside a warehouse filled with inventory

Inventory Management

Inventory management aids businesses in determining which goods to order and when to purchase them. It keeps track of merchandise from purchase to sale. The strategy monitors and reacts to trends to guarantee sufficient inventory to satisfy client orders and detect shortages early. Merchandise ties up cash before it sells. Consequently, having too much stock costs money and hurts cash flow. Inventory turnover is a financial metric that shows how frequently stock is sold over time. A company doesn’t want to have more inventory than it can sell. Dead stock, or unsold, can result from low inventory turnover.
automated robotic arm sorting parcels boxes inventory

Why Is Inventory Management Important?

With efficient inventory management, businesses may manage the number of products coming in and going out. The better a company’s inventory management is, the more revenue it may save on operations. Overstock occurs when a business holds too much stock. Overstocked goods, also known as deadstock, often sit in warehouses, unable to be moved, eroding a company’s value. Overstocked enterprises have money-locked excess inventory, which restricts cash flow and may result in a fiscal deficit. However, if a company does not have enough merchandise, it might negatively impact customer satisfaction. A company’s revenues may suffer due to a lack of inventory. Customers may transfer their business elsewhere if you tell them you don’t have anything and keep ordering it. Firms can use an inventory management system to balance under and overstock for maximum efficiency and financial performance.

Calculate ending inventory with this formula: Beginning inventory + net purchases – COGS = ending inventory. The ending inventory of the previous period serves as your starting inventory. The products you've purchased and added to your stock count are net purchases.

Inventory management is an integral component of e-commerce today as it adds value to your business by offering a range of perks. Some of these benefits of inventory management are listed below:

Improved Inventory Accuracy

You can keep track of what’s in inventory and purchase whatever you need for custom orders with good inventory management.

Reduced Overselling Risk

Inventory management facilitates the tracking of what’s in stock and on hold, ensuring that you don’t oversell items.

Cost-cutting

Stocks are expensive until they are sold. Storage, handling, shipping expenses, insurance, and employee salaries are all part of the carrying costs. Inventory is also prone to theft, natural disaster damage, and expiration.

Avoiding Stockouts and Having Too Much Stock

Better planning and control can assist a company in reducing the number of days a product is out of inventory, if at all, and prevent maintaining too many inventories.

Enhanced Insights

You can simply notice sales patterns, track recalled goods, and track expiry dates using inventory and stock control.

Improved Vendor and Supplier Terms

Inventory management also reveals which products are selling in what quantities. Use that understanding to bargain with suppliers for better rates and terms.

Enhanced Productivity

Inventory management software saves time that could be better spent on other tasks.

Profits Increased

Improved inventory turnover contributes to improved earnings due to a greater understanding of supply and demand.

A Well-Ordered Warehouse

Labor expenses are reduced, and order fulfillment is accelerated with efficient warehousing that organizes things based on the market, which items are frequently sold together and other variables.

Improved Customer Service

Customers that acquire their orders promptly have a higher level of loyalty.

Types of Inventory

While processing and managing stock, a corporation may encounter various forms of inventory. Some different inventory types are as follows:

Raw Materials

A corporation’s materials to develop and finish items are raw materials. Once the product is completed, the essential elements, such as the oil needed to make shampoo, are usually indistinguishable from their previous state.

Parts Inventory

Components or parts are comparable to raw resources. They are the materials that a corporation utilizes to make and finish things, except that they, like screws, remain identifiable after the product is discontinued.

Work in Progress

WIP inventory products are goods in the production process, including raw material, personnel, expenses, and packaging.

Maintenance, Repair, and Operations (MRO) Goods

WIP inventory products are goods in the production process, including raw material, personnel, expenses, and packaging.

Finished Goods

Completed and ready-to-sell products are referred to as finished goods. These could have been produced in-house or obtained as a complete, final product from a vendor. Most shops will buy entire, finished goods from a provider or commission a third party to create custom products. As a result, finished items are frequently (but not always) one of the few forms of inventory that require attention in commercial managing stock.

Packing & Packaging Materials

Packing materials are divided into three categories. The primary packaging preserves and makes the product accessible. Secondary packaging refers to a product’s final packaging, including labeling or SKU data. Tertiary packaging is the bulk packaging intended for transport.

Anticipation and Safety Inventory

Safety stock is the additional inventory that a corporation purchases and stockpiles to handle unexpected situations. Likewise, anticipation stock comprises raw materials or completed goods that a company buys in response to sales and stock patterns. A company might acquire safety stock if the price of primary resources rises or if peak sales season is coming. Safety stock costs ownership, but it helps maintain customer happiness.

Decoupling Inventory

Decoupling inventory refers to excess items or work-in-progress stored at each manufacturing line station to avoid shutdowns. While all organizations have safety stock, the decoupling stock is only applicable to companies that make items.  and is helpful if segments of the line management are at varying speeds.

Excess Inventory

Excess inventory, also known as obsolete inventory, is leftover or underutilized items or raw materials that a business doesn’t anticipate using or selling but pays to hold.

Service Inventory

Service inventory is a term in managerial accounting that relates to how much support a company can deliver in a specific time frame.

Cycle Inventory

Businesses purchase cycle stock in batches to ensure that they have the proper amount of products at the lowest possible storage cost.

In-Transit Inventory

Companies that move things or commodities from one site to another need to keep track of their transit inventories. Merchandise sent by truck or rail from a distribution center to your retail establishment can take several days (or maybe even weeks) to arrive. When it pertains to market forces, you must take inventory in transportation into account and the deadlines for meeting those requests.

Theoretical Inventory

Also known as book inventory, it is the smallest amount of stock a corporation needs to operate without waiting. Theoretical inventory is primarily employed in the manufacturing and food industries. It is calculated based on the actual versus theoretical data.

Digital Inventory

Digital inventory refers to keeping track of inventory activity. It entails using inventory tracking systems and other techniques to enhance transparency by monitoring and gathering data as finished products travel through the distribution chain.

What Is an Example of Inventory?

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Inventory models can be made more tangible by using real-world examples. The examples below show how various types of inventory are used in manufacturing and retail operations.

Raw Materials/Components Inventory: Fabric, thread, dyes, and print designs are among the raw materials and components used by a t-shirt manufacturer.

Finished Goods Inventory: Charm necklaces are produced by a jewelry company. To make a finished object suitable for sale, staff connects jewelry to a preprinted card and slides it into cellophane wrappers. The finished good’s cost of goods sold (COGS) comprises its packing and the effort required to create it.

MRO Goods Inventory: Copy paper, files, printer ink, gloves, glass cleaner, and dusters for sweeping up the grounds are examples of maintenance, repair, and operating supplies for a residential property community.

Packing Materials Inventory: The primary packaging material for a seed company is a sealed bag containing, for instance, flax seeds. The secondary packaging involves putting the flax seed packets in a box for transit and storage. The bubble wrapping needed to transport stacks of product cases is known as tertiary packing.

woman with a hard hat inspecting a warehouse

What is Inventory Tracking?

woman with a hard hat inspecting a warehouse
Inventory tracking refers to a company’s method of regularly monitoring all of its inventory. The most popular inventory definitions are raw materials, unfinished commodities, and ready-to-sell things.  You can see your precise stock levels, the whereabouts of each product or SKU, updated delivery estimates, and other inventory-related data using inventory tracking. Any workplace that interacts with inventory has inventory tracking: manufacturing and production firms, warehouses, retail stores, etc.

What Is an Inventory Tracking System?

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A supply chain management system’s inventory tracking system is a tool that helps you monitor your stock and manage inventory-related consistency. It continually monitors your stock levels and sends you an alert when they go below a certain threshold. When using an inventory tracking system, you can rest easy knowing that the platform will always display real-time inventory levels, preserve transparency, and accurately manage stocks. This way, you’ll have a better grasp on your inventory, and a sound inventory tracking system will drastically reduce the risks of miss-delivery or delivery delays.

On the other hand, inventory tracking is when you have constant inventory inspections and statistics—in other words, understanding your inventory levels in real-time and the accurate number of inventory, location, warehouse name, and other critical data. Furthermore, the inventory tracking system is the method, program, or system that allows this complete process. So, while we’ve talked about the inventory tracking system, it’s important to note that the phrases ‘inventory tracking’ and ‘inventory tracking system’ are not interchangeable.

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What Can Inventory Tell You About a Business?

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One indicator of its performance is the pace with which a company’s inventory turns over. When a company sells its products faster than the competition, it reduces holding costs and misses opportunities. As a result, they often outperform, as this aids in the effectiveness of its product sales.

Tips for Managing Your Inventory

Consider purchasing inventory management software

Most likely, your company has outgrown the use of clipboards and spreadsheets. It’s undoubtedly time to start automation if you spend more time maintaining and checking your inventories than monitoring your staff. The correct inventory management system can regularly collect the input data, check inventory levels, send price change alerts, etc. You may return to concentrating on your key talents thanks to the platforms.

Stay updated on the sales figures

Examine recent sales patterns during the last several weeks and more historical trends over longer periods referred to as macro trends. Look for seasonality and patterns.

Make use of the first-in, first-out (FIFO) method

“First in, first-out” is what FIFO stands for. Because the oldest inventory is the first to arrive, you should sell it out before the fresher supply is made available to customers. This e-commerce inventory control approach is especially critical for perishable goods’ businesses. You won’t be stuck with expired goods you can’t sell if you do it this way.

Even if your products aren’t perishable, allowing them to sit on the shelf for an extended period can cause them to become obsolete when fresher options become accessible. Another factor is that if your provider updates the packing of their items, the old stock becomes outdated, so it’s critical to sell the old inventory first.

Begin your research by acquiring credible information

Inventory managers optimize warehouse space, prices, and computing capabilities using data from numerous sources. Examples are supplier information, batch numbers, SKUs, picking rates, and other items. Keeping track of this data will help you build a valuable data store that will form the basis for your analytical strategy.

Inventory management software can assist you in accurately creating, tracking, and storing this data by integrating with UPC scanners and other RFID equipment to reduce manual data entry. Furthermore, simple-to-understand panels that show inventory control indicators and KPIs can be used to provide data and insights.

Use the last-in, first-out (LIFO) strategy, but sparingly

LIFO allows warehouses to protect themselves from escalating costs. Cars, for example, are susceptible to continuous price hikes. As a result, the most recent merchandise you purchased is always more expensive than earlier inventory.

You’ll make a smaller gain on these high-priced, last-in things if you sell them first, which implies you’ll be able to report a lower taxable income and reduce your tax liability. One of the few times where LIFO makes sense is in this situation. The United States is the only country that uses LIFO, although widely recognized accounting rules discourage it (GAAP).

Understand economic order quantity (EOQ inventory model)

The ideal amount for your organization to purchase to have just enough product on hand to meet client needs without keeping too many items in stock is the EOQ. You’ll need more of the valuable, slower-moving objects if you’re working with a fast-moving item and in contrast, fewer of the practical, slower-moving items if you’re working with a fast-moving thing. 

However, speed, or how rapidly products move, isn’t the only factor. The EOQ fluctuates depending on how much it costs to make, transport, maintain and manage the item. You’ll be able to purchase fewer stock levels if you learn to adjust EOQ, lowering handling and storage expenses while increasing profit.

Learn about the difference between EOQ and MOQ (MOQ)

The appropriate quantity of merchandise to order is known as the EOQ. A supplier’s MOQ is the smallest number of items they will sell. For example, you might only be able to order a specific item in one-pallet or one-container quantities.

You may need to choose a new vendor or product if your MOQ is more significant than your EOQ, or you might have to accept a less-than-ideal condition. Your vendor ties may come into play, allowing you to create custom orders or lower the MOQ in various ways.

Examine your stock

Assessing your stock is the first step toward proper inventory management, and identifying stock levels is the first stride toward adequate control. You can do the audit yourself or employ someone to do it. A complete audit looks at additional performance parameters, such as your inventory turnover ratio and inventory expenses compared to past trends and a physical count of stock.

An inventory audit can help you identify areas where you can grow, such as receiving difficulties, and it can also help you keep track of shrinkage.

Maintain a consistent stock-receiving strategy

When it arrives, verify the number of palettes, cartons, and storage keeping units (SKU) in the stock, enter this data into a warehouse management system (WMS) and manually place the stock inside the facility. 

The disparities between what your system claims you have and what you have on hand can be reduced if you do it the same way every time. And, by designating an SKU to track the quantity and position of your product, connecting your SKUs with your warehousing software solutions can be a crucial step in setting up your receiving operations for success. 

Effective inventory management begins with accurate and dependable intake procedures to have merchandise on hand to fulfill consumer demand.

Order restocks yourself

Instead of letting suppliers handle your reorders, take charge of them yourself. You’ll be able to keep a closer watch on consumer demands and estimate future purchases. Furthermore, inventory management software can help set automatic reorders and provide current sales history. 

While it may seem like extra work, managing your orders may save you time, guarantee you have the items on hand to satisfy client demand and assist you in effectively managing your storage space by getting the right amount of product on your shelves.

Recognize the 80/20 rule when it comes to inventories

The majority of enterprises discover that 20% of their inventory provides 80% of their income. This approach guarantees that the more lucrative 20% of your stock is used to its total capacity, rather than eliminating the less profitable 80%. To put it another way, you must have enough inventory to sell. You must also handle these items with care to avoid damage, and they must be easily accessible in your warehouses or facilities.

Maintain vendor and supplier relationships

Your company will struggle if you don’t have the right vendors. Maintaining positive ties with them is critical. You’ll frequently need to ask your vendors for assistance or other concerns, and the swift and favorable reactions could save your company a lot of trouble.

Provide customer behavior insights

Better customer feedback is essential for small organizations because it can aid inventory tracking and control. You can learn much about your customers’ preferences by tracking how much product stock is transported. As orders come in, this can shorten lead times and improve productivity at your time of sale. Furthermore, following a product release, any peaks or drops in inventory will provide valuable feedback on your advertising efforts and product appeal.

Use Dropshipping Inventory Management

Dropshipping is popular among online store owners. Dropshipping permits you to sell things without storing the products yourself. When a customer buys from your shop, a distributor or producer is responsible for taking inventory and transporting the products. In this method, you won’t have to worry about total inventory times, warehousing, or fulfillment. However, various enterprises may use this distribution network fulfillment strategy.
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Just in Time (JIT) inventory

Just-in-time, also known as JIT, is an inventory management method whereby labor, material, and goods (to be used in manufacturing) are refilled or scheduled to arrive exactly when needed in the manufacturing process.

JIT approach has the capacity, when adequately applied to the organization, to significantly improve the organisation’s competitiveness in the market by minimizing waste and improving production efficiency and product quality.

The main focus of JIT is to identify and correct the obstacles in the production process. It shows the hidden problems of inventory. The prime objective of JIT is to increase the inventory turnover and reduce the holding and all related costs.

A car factory, for example, uses a JIT system to function with basic minimum inventory levels due to a high dependence on the distribution chain to supply the parts needed to make cars. The components required in the production of automobiles do not come beforehand or when necessary; instead, they are required just when they are needed.

The manufacturer’s ability to deploy JIT depends on how it controls its vendors. They are under tremendous pressure since the material supplier must be ready with plenty of high-quality material whenever the need arises.

The specifics of how organizations deploy JIT in particular environments may differ, but the essential steps remain the same, which are stated below:

Product development, production process, personnel, and manufacturing planning are reviewed in the JIT process. Then strategies are made to minimize disturbance, save waste, and create a flexible structure.

Manage

A Total Quality Management (TQM) evaluation assures that the process continuously improves. A management review establishes the roles and duties of employees, establishes and evaluates statistical process control, stabilizes timelines, and verifies loading and capacities schedules and ranges.
JIT’s success is dependent on vendor relationships. Examine the vendor lists. Decide on preferred vendors, negotiate deals, discuss lead times and delivery objectives, and summarize the number and metrics. Learn how to use them in the distribution chain to your advantage.

Fine Tune

Determine inventory requirements, regulations, and controls, as well as inventory movement reductions.
Educate your staff on the talents and capabilities they’ll need to finish their tasks and hold team training and development workshops to help them learn more.

Review

Define and establish quality measures and metrics and perform a root cause analysis of any problems. Identify trends and strive for improvements on every level of JIT.

Just-in-time inventory control cuts waste boosts working capital, increases adaptability, maximizes personnel, and promotes team engagement.

Companies that excel at JIT inventory control optimize earnings by limiting stock investment to a minimum. To manage inventory, they depend on information. They collect data on transportation, customer satisfaction, asset protection, storage, acquisitions, reorders, products in the warehouse, reception, stock turnover, and other topics utilizing ERP (Enterprise resource planning) software.
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Surplus Inventory and Deadstock

When a company’s inventory has a surplus of what is required, it’s called surplus inventory. It can either be for product design or an abundance of goods for its own defined limit. While some company executives may view an excess inventory as a positive, those selling items with expiration dates may consider it a downside, as the excess will go to waste if not sold in time.

The inventory that merchants and e-commerce sellers fail to sell — inventory that also has a low chance of selling in the future – is known as dead stock. Deadstock differs from returned goods in that it has never been sold to a consumer. Deadstock goods are usually stored in warehouses or the storage of a physical location.

Deadstock is a more significant issue for e-commerce enterprises that don’t have reasonable inventory control or management in operation. Inventory management solutions or technology are considerably less likely to leave businesses with surplus inventory on their store shelves.

xDeadstock is also known as ‘obsolete stock, ‘dead inventory,” and ‘excess inventory/stock,’ among other terms.

warehouse guy checking his tablet inside a warehouse

What is an Inventory Management System?

warehouse guy checking his tablet inside a warehouse

An inventory management system (or inventory system) monitors your goods across the entire supply chain, from purchasing to production to end sales. It guides your approach to inventory management for your business.

Any venture that deals with stock needs a system to track and control it accurately. With no system in place, you’ll be operating on a fully ad-hoc basis — and it won’t take long for your business to become overstocked or understocked.

Inventory systems indicate how many components or ingredients you need to produce or assemble your final product. Without this insight, you may have excess stock, eroding your bottom line, or insufficient supply to meet customer demand.

While an inventory management system is a must have, deciding which one is entirely up to you. You can adopt countless methods, ranging from simple approaches to comprehensive solutions.

Perpetual Inventory Management Systems

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A perpetual inventory system is an inventory control strategy that uses inventory management software that automates the process to track when merchandise is moved or acquired in real-time. Companies will record stock changes in a perpetual inventory program at the moment of the trade.

Whenever items are bought or sold, a perpetual inventory system records inventory counts regularly. This inventory method is more precise and efficient than a periodic inventory system in inventory accounting.

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Here's a step-by-step walkthrough of how this inventory system works.

Step 1: Inventory levels are updated by the point-of-sale system
When a sale is made, the inventory management system linked to the POS (point-of-sale) network instantly debits the primary stock across all sales channels. Updating the inventory can be done quickly and easily using barcodes or RFID scanners.
Step 2: The cost of goods sold is immediately updated
The cost of goods sold (COGS) is updated every time an item is sold or received.
Step 3: The reordering points are changed regularly
A perpetual inventory system automatically changes reorder points when sales increase or drop based on history to maintain an optimum value of inventory items.
Step 4: Purchase orders are generated automatically
When a product or SKU (Stock keeping unit) reaches its reorder point, the program generates a purchase agreement and delivers it to your supplier.
Step 5: Goods are scanned into inventories when they arrive
When merchandise is delivered to your warehouse, a warehouse employee scans it with warehouse management software (WMS) so that it appears in your inventory management interface and may be purchased across all or some marketing channels.
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Manual, Low-Tech Inventory Management

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Inventory Management via Spreadsheet

Excel could be a fantastic option if you seek a low-cost tool to manage your inventory. Many of us are generally acquainted with the software, whether for bookkeeping or spreadsheet forms, and it’s a viable solution for inventory management apps. Excel can handle essential inventory management for small enterprises thanks to interactive tools, functions, and formulas that make spreadsheets more dynamic and engaging.

Like anything else that’s free or cheap, Excel isn’t perfect for managing inventory, but it has many valuable capabilities. While it is simple to make errors with Excel, it is entirely capable of handling the stock of a starting company.

Excel inventory management is an attractive option for smaller businesses that are just starting and wish to track their inventory. However, before using Excel spreadsheets, you must first become familiar with the program and learn how to arrange your inventories using categories sections and manual product input.

These steps will help you manage your inventory using Excel:

Make an Excel spreadsheet

Begin by generating a new spreadsheet in Microsoft Excel to handle your inventory. Select New from the menu in Excel. To begin with, a new Excel sheet, click the Blank worksheet or press Ctrl + N. Next, go to the spreadsheet workspace and fill in your details.

Add any appropriate product categories in columns

After completing your new spreadsheet, you can add a tab with a product headline to display your entire inventory report. You can then click the Products tab and build a table with your product types as columns. You can track item competitiveness and productivity on a typical basis by defining these specific columns.

Fill out the spreadsheet with each item you sell

Then, in the relevant category column, list each product you sell. It’s up to you how comprehensive you want to be, but including the product name, descriptions, asking price, sales price, and registration number or SKU is undoubtedly beneficial. Inventory quantities, inventory value, stocking locations, and pertinent reorder points are valuable information for your products.

As sales roll in, adjust the quantities

Even after entering all relevant product details, you’ll still need to regularly keep track of your spreadsheets because Excel is a static system (i.e., it lacks automated systems and integration). You’ll need to go to it often and modify your various inventory levels as transactions and goods movements occur.

Keeping track of your inventory counts is critical, as neglecting to do so can

lead to delays in your distribution chain and various inventory problems.

Keeping track of your inventory counts is critical, as neglecting to do so can lead to delays in your distribution chain and various inventory problems.

Dedicated Inventory Management Software

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Many modern businesses rely on inventory management. They operate solely to assist merchants in organizing their supply chains. Firms can use the solutions to develop more complicated, nuanced inventory management systems.

Dedicated inventory control solutions are available in a variety of sizes and configurations. Many are now cloud-based, making them simple to set up and grow as needed.

Among the most notable benefits of a dedicated inventory management software are:

  • Stock levels are constantly updated
  • Low stock alerts are sent automatically
  • Businesses can use barcodes or lot numbers to track assets
  • Record-keeping accuracy
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dark warehouse filled with products inventory

Why You Need an Inventory Management System

dark warehouse filled with products inventory
The primary goal of the inventory management process is to establish the appropriate amount and kind of input goods, in-process goods, and finished products to streamline manufacturing and distribution operations while lowering costs.

Now, let's consider why an inventory management system is critical to a growing or reputable business:

Tracking Inventory

A sound system will assist you in keeping track of your inventory and provide a complete overview of stock across all sales channels, including how much is in stock and where it is located. It will also allow you to allocate goods to particular retail channels, which is vital if you have various warehouses and fulfillment centers, making warehouse management possible.

Keep your expenses under control

Keeping inventory records lets you see which goods are performing well and which are merely taking up space. Delayed sales, excessive stock, and other issues might result from a lack of the proper inventory at the correct time. Costs rise as a result.

Enhance your delivery

Delivering late due to stockouts will cost you your reputation. It is critical to know when the seller offers the product and when it will reach for tracking purposes. Enhancing your delivery allows you to manage customer expectations by providing what they want when they want it.

Manage your forecasts and planning

By examining data patterns from well-performing equities, the software helps you enhance demand forecasts. You can also exceed client expectations by planning and control. Proper planning reduces storage and holding costs, boosts your earnings, and frees up your cash inflows.

Inventory management is possible in a fraction of the time

You may save time using a clever stock management solution to keep track of your in-store and on-demand items. Additionally, you will save time on stock recounts if your data are in order.

Increasing supply chain efficiency

Retailers and e-commerce enterprises can implement distribution network diversification more effectively with an inventory management system. When it concerns the distribution chain, unexpected obstacles are expected. If you have more providers, you lessen the chance of long product wait periods if one of them fails to deliver on schedule. 

You can plan ahead of time for a specific period, such as peak season, to purchase the correct inventory quantity from a supplier and avoid problems.

Inventory turnover rate is high, which means more revenue

A company’s income can increase through efficient inventory management and control. A business can use inventory planning to bridge the gap between increasing revenues and lower costs. If a company neglects the benefits of inventory control in its industry, marketing, and manufacturing, it may be difficult to maximize its operational efficiency. 

The cost of procurement and inventory manufacturing significantly impacts gross profit. A company’s gross profit can be improved by lowering its production costs. As a result, an appropriate inventory strategy is critical. And, with all circumstances equal, such a corporation would report more revenues, leading to higher profitability, demonstrating the necessity of inventory management.

An inventory control strategy facilitates purchase Economies

Inventory planning and monitoring are essential for reducing procurement economies and ensuring product consistency. This strategy ensures that smooth flows of raw resources are maintained. 

Purchase Economies are also facilitated by swiftly selling all slow-moving commodities and maintaining the appropriate stock levels. As a result, there are no shortages throughout the manufacturing process — inventory management benefits help reduce the chances of losses to disuse or degrade items, emphasizing the necessity of inventory management. Objects are regularly checked based on these factors.

Features Your Inventory Management System Must Have

Centralized inventory management

A notable feature of an inventory control system is keeping track of all inventory details. An inventory management system accurately records inventory quantities, product history, and other product attributes. 

Among the best attributes of inventory management software is that it integrates with other inventory system modules. Excellent centralized inventory management aids in accurately functioning the inventory management system. 

A centralized inventory management system boosts the team’s productivity and communication. As a result, team members from various locations can communicate and collaborate.

Tagging and Barcoding inventory system

Reducing common human errors is another fantastic advantage of the inventory system. Manual data entry is prone to error, but reading the barcode saves workers time. Worker training exercises and budget value are reduced thanks to the barcoding feature. In the past, recording product data required a great deal of time and effort. The inventory control system’s barcoding and tagging functionalities have made it more accessible. Now the most time-consuming tasks are handled in the shortest possible time.

As a result, inventory management system technology allows you to track things efficiently using tagging and barcoding.

Reporting on the company's operations

Monitoring business operations is one of the most valuable features of an inventory management system. Employees must inform people in charge of an inventory business about business operations such as the driver’s whereabouts, the condition of the goods, details about the order’s shipment, etc. A company can integrate many technologies into the inventory control app to make task reporting more efficient.

Forecasting inventory levels

Forecasting is a one-of-a-kind method of ensuring a positive user experience while conserving resources. An inventory management system helps track which products are running out of stock and which are plentiful in the company’s inventory. As a result, businesses make informed decisions when purchasing merchandise through inventory forecasting.

Notifications about inventory details

The days of manual inventory control are long gone. Management no longer has to devote significant time and effort to stock data management. A stockout alert tool is a valuable feature in an inventory management system. The software describes numerous consequences due to the notifications’ low stock.

Inventory backup and protection

Regardless of the kind of business you are in, appropriate inventory backup and security are critical for the inventory to operate smoothly. Hacking is difficult with inventory management software since it has intense security levels. If inventory software is compromised, the data is backed up and accessible to business owners. As a result, inventory protection and safety prevent any disruptions.

Cloud data software and the Internet of Things (IoT)

Inventory management software is cloud-based and accessible from a variety of devices. In addition, inventory management system technology is IoT-driven, making it easier to effectively and smartly capture all of the inventory’s data.

The Internet of Things (IoT) helps to keep inventories coordinated and streamlined. All of the company’s employees can obtain real-time updates.

Ease of integration with other systems

Companies nowadays have implemented an ERP (Enterprise resource planning) system, which has enhanced their productivity to a more significant extent. The business can collect the system’s information indefinitely. The organisation will reap substantial benefits if the company can connect inventory management software with ERP, the organization will reap significant benefits.

Optimized inventory

Another excellent aspect of inventory management software is that it streamlines and manages a company’s inventory. The improved stock makes it easier for management to operate and achieve deadlines.

Product's demand and supply

Inventories software helps business owners keep track of their inventory. Managers effectively balance the demand for and supply of corporate items. Well-maintained inventory software is why companies can generate enormous amounts of funds yearly.

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Frequently Asked Questions

Inventory purchase is the acquisition of items that sellers will resell to consumers.
Ending inventory – Beginning inventory = Inventory purchases – Cost of goods sold or Ending Inventory = Beginning Inventory + Inventory Purchases – Cost of Goods Sold

The four main inventory types are WIP, components/raw materials, Maintenance, Repair, and Operations (MRO) Goods, and finished goods.

On the other hand, ‘sales’ refers to exchanging something of worth for an offering.

Inventory includes commodities that are ready to be sold to clients, natural resources, and work-in-process, eventually becoming finished goods.
MRO goods inventory, Cycle inventory, Decoupling inventory, Anticipation inventory, Buffer inventory, and Transit inventory are six inventory types.
Stock includes finished goods, parts, materials, and anything else you offer to clients. The more stock (or things) you trade, the more money your company makes. Inventory refers to final products and any assets a company possesses or utilizes to finish manufacturing.
Sale of inventory contains all of the commodities, goods, merchandise, and materials retained by a firm to resell in the market to make a profit, referred to as inventory.
When an inventory item sells, the cost of the product is deducted from inventory and recorded as the cost of goods sold on the income statement.
The three primary inventory management techniques are the Just-in-time (JIT), push, and pull strategies.
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