What is the scope of inventory management

Everything you can about the

The inventory includes everything from boxes of straws in the back office of a small diner to a huge warehouse full of product parts for a large retailer. In both cases, the inventory includes all goods that have been bought from a supplier that a company would ultimately like to sell

Carrying and managing inventory has many associated costs that affect a company's bottom line and productivity. Proper inventory management is essential to maintain a competitive advantage and minimize waste. Read on to learn all about inventory management.

What is inventory management?

Inventory management is a systematic approach to ordering, storing and selling raw materials and finished products.

It is the process of tracking and organizing products in the duration that the company owns them. Profits are generated when inventory is sold to customers. To

belong to the most important functions of warehouse management

  • Picking and Packing Directs employees to the correct warehouse to pick up and deliver items
  • pack
  • Shipping The invoices, packing slips and other aspects involved in shipping storage locations manage storage locations
  • Placing items in the correct warehouse to minimize waste
  • Incoming Orders Manages incoming orders to route them to the correct shipping center
  • Track Inventory A real-time total of the inventory status of each product
  • Reporting tools Generates inventory data to provide insights, improve decision-making
  • Barcode Tracking Manages incoming barcode data and coordinates with shipping and accounting systems

Why is inventory management important?

Since inventory is an asset that is documented on a balance sheet for tax purposes, proper inventory management is critical to reducing expenses.

Companies must physically count their internal goods in order to calculate the number of inventory levels, or they must use a software system that can reliably document all inventory-related data.

Not only is tracking inventory good business practice, but it is required that you comply with SEC rules and the Sarbanes-Oxley Act for Public Corporations. In an effort to meet these standards, companies must understand and have access to all of their supply chain processes.

Companies that lose track of inventory lose money. Failure to understand how much product there is can lead to over-ordering, under-ordering and inefficient workflow processes.

It is also important to manage inventory levels to predict future sales and profits. Companies that have an efficient ordering process use their historical sales and inventory data to estimate how much you will buy and how much will be sold in the future.

There are many associated costs with inventory that affect profits, especially for small businesses. In the US, manufacturers, retailers and wholesalers have 1.9 trillion inventory costs. Experts claim that 90% of a company's inventory is in stock, while only 10% is on the way for sale. Proper inventory management can help reduce many of these transportation costs.

An effective inventory management system also improves customer satisfaction as there is an assurance of what is for sale and what is not.

The company will know exactly when the next set of supplies is coming and will not have to worry about a customer needing a product that is not in the store. The company will be prepared and will know what products are low in stock. You can then adjust your sales and marketing strategies accordingly.

What is an inventory management system?

From a traditional paper book to spreadsheets, there are a variety of tactics and technologies used by businesses small and large to manage inventory. However, an inventory management system is typically a type of software that counts and tracks products and raw materials.

Quality management systems keep track of all inventory and provide information that identifies which products are selling better than others. They usually also include a notification system that alerts the administration when inventory is low.

With the rise of e-commerce and globalism, inventory management has monitored new barriers that require high-tech solutions. An effective management system can meet these challenges by ensuring that products are in the right place at the right time.

Types of inventory management systems

The most common types of inventory management solutions include-

1. Full stock vs. permanentInventory
A complete inventory is usually carried out annually and in accordance with a financial audit. When the store closes, an inventory team counts all items in the warehouse. Since the entire inventory is counted at the same time, this process is timely and extensive

Continuous inventory is used to count a segment of inventory on a frequent basis. For example, a retailer might count one set of products on a Wednesday, another set of items on Thursday, and so on.

If the warehouse is larger, the items with higher value may be counted more often than others. Smaller, regular inventory figures help companies to get a more comprehensive overview of their inventory.

There is always a potential for human error in inventory or cycle counting. Inreliable inventory data creates difficulties for the entire company. Hence, it is best to use a software system that is more accurate in the counting process.

2. Manual inventory count
A manual inventory system is updated and controlled without the use of a technical system. Counters can use a book to do a manual count or they can use a spreadsheet.

Small businesses sometimes find a manual approach to being more efficient because they don't have that much inventory to take care of.

A manual count can be carried out internally or the owner can hire an external provider to complete it for him. Small businesses typically close a day or two a year to do a manual inventory check.

Every step in this process has the potential for human error. Workers may be mis counting items in the warehouse, or data may be entered incorrectly. Unfortunately, an incorrectly counted piece can affect several other parts of the manual count. In many cases, companies have had to repeat their entire inventory count due to a small mistake that was made.

After all, manual data is not always translated into useful information that provides a comprehensive view of inventory, supply and customer demand.

3. Barcode system
This system uses a reader to scan a barcode attached to each product or package. Workers can carry a barcode reader, which speeds up the process dramatically.

One advantage of the barcode system is that the number is counted in real time, as the input data is immediately uploaded to a database. If an item has already been scanned, the worker receives a warning.

Because there is less potential for human error, management is more confident in making decisions to buy and sell more or less inventory.

4. Radio frequency identification tags
An RFID uses radio waves to read and capture data that is stored in a tag attached to a product.
There are two types of RFIDs - active and passive.

Active systems use tag scanners that are located across memory. Real-time updates of the inventory figures and their location are given to the provider or an in-house inventory counter.

A passive system can only be read when someone turns on the scanner. Both types of processes automatically document the inventory in a database when a tag is read. Passive systems simply require the worker to manually switch the reader to himself.

5. Warehouse robots robots
use machine learning to scan labels with no barcodes attached. Storage robots have better sensors and responsiveness than other forms of inventory counting systems.

They can also be integrated into the warehouse management software in order to upload all data quickly and precisely. Using a robot can drastically reduce labor costs as they automatically perform inventory counts without the need for human supervision.

The advantages of inventory management The

Using an inventory management software system has many advantages, including-

1. Less potential for human error
Profits are lost and time is wasted when a count needs to be refreshed because someone made a mistake.
Many software systems include barcode scanning, which eliminates the need for manual entry of information. By counting correctly the first time, companies can drastically reduce inventory costs and increase profits.

2. Adaptable to changing situations
Since there are always busy and slow seasons, inventory management will never be exactly the same all year round.

Companies that make manual counting need to rely on their employees to adjust to a busier season, make accurate counts and not make mistakes.

For some, this can be an almost impossible task. An optimized inventory software system is able to handle inventory increases as they do not require breaks, time-outs, or inventory management training.

3. TheIncrease in workers' morale
Organizations benefit from using an inventory management software system because workers are no longer required to complete so many dangerous or mundane tasks.

It is not necessary for a salesperson to climb up a pile of boxes to count items on a top shelf, nor does anyone need to spend hours counting particles of clothing. An inventory software system can automatically complete many of these projects.

The software can also be integrated into cell phones so that managers can perform updates at any location. This will help improve employee morale and free up resources to do other important tasks.

4. Improves customer satisfaction
A software system can increase the delivery of inventory while reducing the potential for human error. Businesses will have a better ability to know what items are being ordered by suppliers, when they are being ordered, and how much to order.

As a result, customers will be satisfied that they can rely on the company to provide excellent service and quick response times. A quality inventory management system can be part of a larger puzzle that provides a competitive advantage.

How to manage inventory

Different companies use different inventory management strategies. Smaller companies also need to count their inventory levels in order to remain competitive in their industry.
Regardless of the size or scope of the business, best practices for inventory management include-

ABC method
This is an inventory categorization analysis tactic that divides inventory into 3 categories- A items, B items, and C items. Category A is the highest level of control and accurate record keeping, and C is the lowest.

Typically, the products that generate the most sales are placed in Category A as it is of greater importance to the proper management of this inventory as it generates more profit. Further sales and inventory analysis can determine when a product should be moved to another category.

Two-bin method at
The two-section method stores products in two areas or compartments, depending on the size of the item.

When a compartment becomes empty, new products are moved into it. When the inventory is gone from the second bin, the company can order new supplies.

Fixed order quantity
This is a control system that sets the maximum and minimum inventory in stone.

When the inventory reaches a fixed minimum, the company can order a fixed number of new items. This prevents the company from over-ordering and running out of inventory.

Order with a fixed period
For this inventory process, products are ordered after a certain period of time, e.g. B. every month or several weeks.

This system is ideal for small businesses that do not have the resources to implement an advanced inventory management system.

Supplier-managed inventory
This system allows the supplier to manage inventory instead of transferring responsibility to the business. The vendor will reorder based on the number of sales or at a specific time of the month.

Food and health chains tend to use a supplier management inventory system as it streamlines the whole process.

Inventory management formulas

Those new to warehouse management will encounter some unfamiliar terminology and formulas. It is important to understand these formulas in order to properly manage inventory. This includes-

1. Economical order quantity
This is the number of items a company should buy from a supplier to minimize transportation costs and save time. Here is some terminology to understand before calculating an EOQ-

D = order costs
K = quantity sold per year
H = accounting costs

EOQ = the square root of (2 x D x K / H)

2. Days of stock outstanding
This refers to the number of days it will take for the inventory to be converted into sales. A lower DIO is preferred as it means there is more customer demand. Here is the equation to calculate the DIO-

DIO = (cost of average inventory / cost of goods sold) x 365

3. Reorder point formula
With this formula, companies know when to order more inventory. Proceed as follows to perform this calculation-

  • Calculate the lead time requirement in days
  • Determine the safety stock in days
  • Put these two together
RPF = lead time requirement + safety stock

4. Safety Stock Formula
The company should have enough supplies to fill orders, but not so much that it increases transportation costs. This formula helps businesses know how much inventory to have before re-ordering. Go
You as follows

  • Multiply the maximum number of products used in a day by the maximum lead time in days
  • Multiply the average consumption per day by the average lead time in days
  • Find the difference between the two to determine how much inventory you want to have available before retrying. Order SSF
= (max. daily usage x max. processing time in days) (average daily usage X average processing time in days)


Here are the key takeaways about inventory management-

  • Understand the Importance of Inventory Management Inventory management includes the ordering, storage, and management of products. Elements include picking and packaging, bar coding, shipping, and more.
  • Effective inventory management is important, inventory management saves time and money, and helps companies comply with federal and state laws and regulations.
  • Organizations Use Different Systems The most commonly used inventory management systems include full inventory, cycle inventory, manual inventory counting, barcode system, radio frequency identification tags and warehouse robots.
  • Proper inventory management is beneficial. The benefits of inventory management include less potential for human error, adaptability, increased customer satisfaction, and improved worker morale.
  • There are several methods of managing inventory picking between the ABC method, the two-way method, the quality method for firm orders, the ordering process for a fixed period, and the vendor-managed inventory to manage the inventory.
  • Know the important formulas Understanding the calculation of EOQ, DIO, RPF and SSF helps to save money and optimize the ordering process.