A Variety of Inventory Management Methods to Enhance Business

For every business, especially in the retail sector, numerous consumables are utilized regularly, outnumbering the assets of the business. Technically, inventory is calculated as assets that need maintenance and management, accomplished through a variety of inventory management methods.

Inventory management is the administration of non-capitalized assets or stock items. These tools control the flow of items from manufacture to dispatch or sale, with the key function being the detailed record-keeping of each item, from production to sale or return, and its entry and exit from the warehouse.

Inventory Management

Inventory management involves tracking and managing the quantity of consumables or stock from manufacturing to sale. The goal is to know the exact position of inventory at any point in time and gauge the quantity present to meet production and sales levels. Various inventory management methods exist to suit business needs and the nature of work. Many companies utilize barcode techniques to scan their inventory, enhancing efficiency and accuracy.

Functions of Inventory Management

Inventory management is vital for the long-term outlook of a business, as it maintains detailed and accurate records. It ensures supply chain management runs smoothly, organizing inventory to eliminate errors in shipment, stock shortages, or overstocking. Such errors cost organizations money in labor and materials to correct later. Implementing inventory management methods reduces the risk of human errors and negative customer reviews, fostering customer loyalty.

Why Inventory Management Is Important for Any Business of Any Size?

Inventory management enables businesses to determine when to restock items, how much to purchase, what price to pay and sell at, inventory planning and control, movement of stock, and re-order levels.

Accounting of Inventory Management

Inventory accounting categorizes stock into four separate categories:

• Raw Materials: Purchased for production purposes.

• Work in Progress Inventory: Raw materials being transformed into finished goods.

• Finished Goods: Complete goods ready for sale.

• Maintenance, Repair, Operation (MRO) Goods: Items supporting finished goods production, purchased from distributors.

Variety of Inventory Management Methods

A variety of inventory management methods efficiently track and maintain inventory or stocks. Investing in inventory tracking software, such as Infizo Stock management software, optimizes business profitability. Impactfully used inventory management methods, tailored to business requirements, include:

1. Economic Order Quantity (EOQ): Determines ideal order quantity considering production costs and demand rates, aiming to reduce related costs.

2. Minimum Order Quantity (MOQ): Specifies the minimum amount of stock a supplier will sell, ensuring retailers meet supplier requirements.

3. ABC Analysis: Categorizes products based on their importance, enabling focused attention on critical products.

4. Just-In-Time (JIT) Inventory Management: Arranges raw material supplies just in time for production, reducing inventory and associated costs.

5. Safety Stock Inventory: Orders extra inventory beyond demand expectations to prevent stock shortages.

6. FIFO and LIFO: Control stock based on first-in-first-out or last-in-first-out principles.

7. Reorder Point Formula: Determines when to reorder inventory based on purchase and sales cycles.

8. Batch Tracking: Monitors sets of stocks with similar traits to track expiration or defects.

9. Consignment Inventory: Vendor provides stock without advance payment, with payment due upon sale.

10. Perpetual Inventory Management: Counts inventory upon arrival, recording manually or digitally.

11. Drop Shipping: Directly ships products from third-party vendors to customers upon sale.

Conclusion

Implementing inventory management methods reduces effort, time, and money spent on unproductive activities. It ensures customer satisfaction with minimal costs, providing essential reporting and analytical views crucial for business success.