Negosentro.com | A Closer Look At Inventory Management | What is inventory management? Why is it so critical for businesses large and small? Inventory management refers to the sourcing, storing, and selling of inventory. It includes the raw materials needed to produce finished goods and the products themselves. It may seem simple, but the larger your business is, the more complicated inventory management can become.
Your company’s specific inventory management definition will depend on the channels through which it sells products as well as the types of products it sells, and the raw materials required to make them. It typically embraces everything from tracking purchases you make from suppliers, maintaining stock, determining how much product you sell (and at what price), and fulfilling orders from customers. The goal of inventory management is to have the appropriate amount of stock in the right place, at the right time, for the right price to you and your customers.
Using an inventory management system could enhance your business in numerous ways. It can help you monitor end-to-end production, analyze and adjust lead times, forecast demand, and produce reports that can improve your bottom line. It also helps you achieve inventory accuracy.
Inventory accuracy involves more than simply knowing how many materials you have on hand — it affects your ability to fulfill orders. Without it, you may misplace materials, have the wrong number of products on hand, or have incorrect lot numbers. This means it’s that much easier to deliver the wrong products to your customers. Without an accurate inventory, you can’t properly track order fulfillment, prepare for expected demand spikes, or know when to order more supplies.
This can place a tremendous burden on your bottom line. In fact, inventory issues are estimated to cost businesses $1.1 trillion every year. This is due to issues such as running out of stock, shrinkage (often without knowing the cause), and the expenses associated with overstocking.
Perhaps even more critical, sending a customer the wrong product hurts your company’s reputation. Further, you must take on the additional expense of shipping the correct product, as well as the time and expense of retrieving and replacing the wrongly shipped one. That’s only one example of the importance of accurate inventory and of having a system that works for your company. See the accompanying resource for more about this aspect of business.
Infographic created by First
Data, a warehousing services company
