Inventory Management Defined, Plus Benefits, Types and Techniques

In this article, you’ll learn about inventory management and its related disciplines from experts in the field. 

What Is Inventory Management? 

Inventory management helps companies track their inventory from purchase to sale of goods. It identifies and responds to trends to ensure there’s always enough to fulfil customer orders and proper warning of a shortage. 

When products are sold, inventory becomes a source of income. Before it is sold, inventory ties up money; therefore, having too much stock can reduce cash flow. 

Why Is Inventory Management Important to Business? 

Inventory management is vital to a Business’s health because it helps track how much stock is on hand, which minimizes the risk of stockouts and inaccurate records. Public companies must track inventory to comply with SEC rules and the Sarbanes-Oxley Act. Management is required to document its management processes to prove compliance. 

Benefits of Effective Inventory Management 

Inventory management can help you fulfil incoming or open orders, which in turn can increase your profits. Inventory management also: 

Saves Money: 

Understanding stock trends allows you to see how much of and where you have something in stock, allowing you to keep less stock at each location (store, warehouse). This reduces the costs tied up in inventory and the number of items that are unsold before they become obsolete. 

Satisfies Customers: 

One way to create loyal customers is to ensure that you can deliver the products they want promptly. 

Improves Cash Flow: 

Proper inventory management helps you to avoid spending money on inventory that does not sell, which means cash is constantly flowing through the business. 

Inventory Management Challenges 

Inventory management is a difficult job, with the main challenges being: having too Big inventory and not being able to sell it, or not having enough stock to fulfil proper orders and not understanding what items you have in stock or where they’re located. Other obstacles include: 

Changing Customer Demand: 

Customer tastes and needs constantly change, so a system that can’t track trends will be useless if it fails to tell you when preferences change and why. 

How to Use Warehouse Space Effectively: 

If products are hard to locate, staff will waste time. A good inventory management system can help reduce this problem. 

Obtaining Accurate Stock Details: 

If you do not have accurate stock details, you cannot know when it is time to refill stock or which products are selling. 

Inventory vs Stock 

In retail businesses, the term “stock on hand” refers to products like apparel and housewares; however, across industries, the term “inventory” refers to stored sales goods, raw materials and parts used in production. 

Some people also use the word “stock” to refer to inventory, although “stock” is more often used in the U.K. than in the U.S. In both countries, however, the terms “inventory” and “stock” are often used interchangeably.