What is inventory management?
Inventory management involves coordinating the tools, processes, and strategies businesses use to ensure that all inventory and stock are accounted for, generally marked against some constant, such as a repeating schedule (reconciled once a month, for example.) The benefits of managing inventory are different for each industry, but most managers will agree that having insight into their inventory allows them to know some really important things, like:
- How much storage room they need for inventory
- How many more items to order in any given category
- What was sold or used
- How much overstock they’re accumulating (for planning future sales and promotions, in the case of retail)
- What data can be reported to the IRS for tax purposes
Inventory managers seek to know if they have the right inventory in the right places. They want to know if they have what is needed at the right time, as well.
Inventory Management Techniques
There are numerous ways to go about managing inventory, and they range from incredibly complex to very simple. But, there are a few factors that every inventory management technique or strategy has to address: knowing if the organization has the right inventory in the right places at the right time for the right cost.
The Right Quantity
The first step in identifying whether you have the right inventory is to see if you have an overstock of a particular item. If you have a lot more of one item than another, it’s likely there isn’t as much of a need for that item. You should not order any more of that item, or at least not as many as you have previously. And if the inventory is being sold, it should probably be placed on sale or in clearance. This will reduce the overstock, which frees up room for higher quantities of other items that are being sold or consumed more quickly.
A good inventory manager needs to keep in mind that if inventory items are seasonal, they may have an overstock of the item at certain times of the year, but then run out during other times. For instance, if you were managing inventory for a garden supply store, you may use more fertilizer during the spring than you would in the winter, which means you may have an overstock of it in the winter but run out in the summer. With appropriate inventory management, you can not only recognize these types of patterns after the fact, but you can begin to anticipate them, which will save you time and money while reducing the inconvenience of overstocking and stockout situations.
The Right Place
Similarly, it’s important for inventory to be in the right place. If you’re managing inventory for multiple locations, you may need to incorporate shipping and logistics into your inventory management processes as well. For example, if you’re managing inventory for a construction firm with three separate satellite offices and three warehouses, the only way you can maximize the efficiency of your inventory of building supplies, tools, and personal protective equipment (PPE) is to make sure the right items are in the closest warehouse at the point where they’re going to be needed. With proper inventory and logistical management, you can avoid purchasing duplicate items (all of which end up being used far less) or delaying time-sensitive projects as workers at one site wait for a tool or vehicle to be sent over from a different jobsite or warehouse.
Even within one facility, it’s important to make sure the inventory is in the right place. For example, if you’re running a machine shop with machinists spread across a 10,000 square foot space, it makes no sense to place your tool crib in one corner of the building. That would mean that the workers who happen to be closest would have easy access to the tools and supplies they need throughout each day, but the workers at stations further away are going to waste a lot of time trudging back and forth to the storeroom throughout the day. In this respect, inventory management can begin involving workflow efficiency and even ergonomics.
The Right Price
From a retailer’s perspective, inventory management is often mainly price-driven. A good way to know if you have your items at the right price is by paying attention to how well each one sells. Items that are selling quickly are likely at a price that the market considers affordable and desirable. Those that aren’t selling as quickly may be priced higher than people consider valuable. The easiest way to determine if it is the price is by reducing it to see if people start buying the item. Of course, seasonality has an impact on what price is considered acceptable, so you need to consider the timing of year. People don’t buy everything strictly based on price. They buy it when they need it.
In many other industries, however, price is not as important of a driving factor in inventory management, but it definitely still has an impact. In non-retail situations, it’s generally the cost of the inventory being managed and how that cost relates to the value the business derives from having it. Specifically, the revenue and profit the company earns as a result of owning or leasing a given item in the inventory. Without effective inventory management, it would be very difficult to connect revenue and profit to the overhead costs involved in buying and maintaining particular inventory items. But, a solid inventory management structure can make that task fairly simple.
The Right Time
Timing can get complicated when you’re trying to anticipate when items will be in high demand. The only way to be sure you have specific items in the right place at the right time is consistently track what, when, and how much to order.
There are a few things you need to consider when you are trying to determine the right time for reorders.
- How long it takes to order the items
- How long it takes for the items to ship
- How long it takes to arrive from the manufacturer or supplier
- How long it takes to receive the items, put them into inventory, and then prepare them for use or sale
In many cases, nailing down the right timing on inventory orders is just as much art as science. Having a reliable system in place makes it far easier to be an artist and a scientist, though. .
Want More Help with Inventory Management?
As noted at the beginning of this article, inventory management can get very complicated. We also saw how inventory management in various industries will naturally branch off into other related disciplines, such as logistics, shipping, and even ergonomics. As a result, in today’s fast-paced business environment, it’s very rare for anyone to be able to maintain a top-notch inventory management program without relying heavily on a powerful hardware and software solution designed to make inventory management as fast, simple, and effective as possible.
That’s the concept behind the GopherWerx brand of inventory management solutions, powered by Freedom RFID. Contact us if you need more help with inventory management, or if you’d like to see a personalized demo of the GopherWerx Inventory and Storeroom solutions for fast, simple inventory management. We can help you get the most out of your inventory.