Steps to successful inventory management

What is inventory management?

Inventory management refers to the practices and processes used to control goods throughout the supply chain, from raw materials through to finished goods. Inventory management includes various activities such as:

• Reviewing stock holding levels
• Minimising costs of handling the goods at various points in the supply chain
• The planning, manufacturing, and processing of the goods

• Identification of bottlenecks within the process
• Assessing and managing current and future stock requirements
• Improvements in service levels for internal and external customers and inventory visibility in supply chains

There is no best approach to inventory management as this depends on various factors. There are many techniques available:

• Just-in-Time
• Economic Order Quantity
• Economic Production Quantity

• Material Requirements Planning
• Vendor Managed Inventory

The most suitable approach is determined by current and future supply/production arrangements.

The key to successful inventory management is to capture accurate data throughout the operational process, ensuring stock is available when required and ensuring the right quantities are ordered.

What are the steps to the successful application of inventory management?

Whatever approach you take to manage your inventory, there are some common steps that will help you make it a success.

• The manufacturer informs the distributor how many items are sold. This can be captured by barcoding and scanning technologies, then passed to the distributor.
• The distributor processes the information, provides details of quantities, product descriptions, delivery dates and destinations, then releases the goods.

• The manufacturer replenishes the distributors stock.
• The distributor invoices the customer, and the customer sends payment.
• For large customers, you may want requirements to be transmitted directly to the manufacturer

There are four main types of inventory management.

These are:

Just-in-Time management: This is where goods are ordered and received as they are needed. It’s used to reduce inventory costs and reduce waste in the supply chain.

Material requirement planning: This is a software-based supply management system where the computer predicts the timings and quantity of materials needed to complete a production process.

Economic order quantity: This helps organisations determine the amount of inventory to order to meet demand and minimise inventory costs.

Day sales of inventory: This method is a financial ratio metric that identifies how much time it takes for the organisation to turn its inventory. 

Organisations must maximise efficiency and minimise costs throughout the whole supply chain to stay ahead in the competitive market. Advanced technologies are transforming inventory management, and often come with higher levels of efficiency and accuracy. Customers are often demanding faster deliveries, and cloud-based solutions and artificial intelligence help to meet customers demands quicker. Cloud-based solutions allow organisations to track inventory in real time and can accessed securely from anywhere.

For more information on procurement technology, visit our dedicated section here: Procurement Technology

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