What Are the Objectives of the Inventory Management System?

Does your business have an inventory management system?  

Do you have all the right products available at the time of need?  

For a company, keeping a record and track of inventory, updating it, and using the same data to track profits, needs, and sales is very important. However, for a small business, an inventory management system can make or break the ability to keep up with sales and demand.

Do you lose any business due to items being out of stock?

Do you lose any money due to excessive stock?

An inventory management system helps you track and control the company's supply, allowing you to optimize your inventory and manage it without spending extra time and money.

The most integral part of the inventory management system is to evaluate your business regularly to ensure you're on the path to success.

What is Inventory Management?

Inventory Management is a technique for organizing stocked goods, inventories, and noncapitalized assets according to their specific shape and placement.  

An inventory can be any item that a business holds for resale or repair.

Inventory Management involves ordering, storing, and using inventories. This stock management includes generating leads on raw materials, components, and finished products, alongside warehousing and processing these items in your company.

The available stock of inventories must be physically counted before it is recorded on the balance sheet.  

Inventory accounting is grouped into four separate categories

1. Raw Materials: These are purchased by a company for production purposes to transform into finished goods.  

2. Work in Progress Inventory: This refers to the process of transforming raw materials into finished products.

3. Finished Goods: These are complete products ready for sale.

4. Maintenance, Repair, Operation (MRO) Goods: Items used to support the production of finished goods, purchased from a distributor for future resale.

What is the principle of inventory management?

The basic principle of inventory management is to manage costs.  

For example, the purchase of materials for a hospital includes the direct cost of materials with inclusive taxes.

Next is controlling the investment amount by balancing the purchase cost and carrying cost, procuring products in optimum quantities, also known as economic order quantity.

Other Asset Management Features We Provide To Our Clients

Infizo Stock Software

Asset Tracking Software

CMMS Software

Inventory Management Software

Preventive Maintenance Software

Utility Management Software

Purchase Requisition Software

Helpdesk Ticketing System

Purchase Order System

What are the objectives of the Inventory Management System?

The investment in inventory is very high, especially for businesses in manufacturing, wholesale, and retail trade.  

The amount of investment might sometimes be more than the amount spent on other assets of the company.

Almost 90% of a business's working capital is invested in inventories. Management should plan how to purchase, handle, store, and account with Infizo Stock software.

The main aim of an inventory management system is to keep the stock balanced to avoid both overstocking and understocking.

Overstocking can reduce other production processes, while understocking can halt work.

The objectives of inventory management are operational and financial. Operationally, materials and stock should be available in sufficient quantities, while financially, the minimum working capital should be locked in.

The objectives of inventory management are as follows

To ensure a continuous supply of materials and stock so that production does not suffer during customer demand.

To avoid both overstocking and understocking of inventory.

To maintain the availability of materials whenever and wherever required.

To maintain the minimum working capital required for operational and sales activities.

To optimize various costs associated with inventories, such as purchase costs, carrying costs, and storage costs.

To keep material costs under control, contributing to reducing the cost of production.

To eliminate duplication in ordering stocks.

To minimize loss through deterioration, pilferage, wastage, and damages.

To ensure continuous inventory control so that materials shown in stock ledgers are physically present in the warehouse.

To ensure the quality of goods at reasonable prices.

To facilitate data provision for short and longterm planning with controlled inventory.

To supply the required material continuously.

To maintain a systematic record of inventory.

To stabilize prices.  

What are the techniques of the Inventory Management System?

Many businesses select one inventory management technique, while others prefer a unique blend of techniques that best suit their needs.  

However, integrating inventory management software like Infizo Stock into your business is crucial.

The technique your business chooses should have the ability to track, trace, and account for your inventory in realtime; otherwise, it may encounter issues.

There are several inventory management techniques you can use to manage, track, and analyze your production and sales system.

The three most common Inventory Management techniques are

1. JustinTime (JIT) Delivery

The JustinTime technique is a strategy to increase efficiency and decrease waste by receiving goods only as needed for the production process, thus reducing inventory costs.

JIT delivery leads to reductions in costs and improves efficiency and profit margins in the following ways

   Decreased inventory levels

   Reduced labor costs

   Less factory space needed

   Stock reduction

   Increased productivity

   Improved quality

   Reduced throughput times  

2. ABC Inventory Analysis

ABC Analysis allows you to categorize your products according to their requirements. Some products require more attention than others. You can add your products to each category based on their requirement list.

   Category A: Includes highquality products with a low frequency of sales.

  Category B: Includes moderatequality products with a moderate frequency of sales.

  Category C: Includes lowquality products with a high frequency of sales.

3. DropShipping:

The drop shipping technique is a retail fulfillment method where a store does not keep the products it sells in stock.  

Instead, when a store sells a product, it purchases the item from a third party, which then ships it directly to the customer. As a result, the merchant never sees or handles the product.    

Conclusion

A proper Inventory Management System, like Infizo Stock, must be used to manage stocks.  

All inventory management needs to do is keep accurate records of items ready for shipment.

Inventory management is also important for keeping costs down while meeting regulations. Supply and demand are a delicate balance, and inventory management ensures that this balance is maintained.  

Frequently Asked Questions (FAQs)  

What do you mean by Inventory Management?

Inventory Management is a process of ordering, storing, and using inventories. This stock management includes generating leads on raw materials, components, and finished products, alongside warehousing and processing these items in your company. The available stock of inventories must be physically counted before it is put on the balance sheet.  

What are the main objectives of Inventory Management?

The over and understocking of inventory usually creates the requirements of different types of inventories, periods of stock, and associated costs. The main objectives of inventory management are:

To supply the required materials continuously: The main objective of inventory management is to maintain the required inventory to run the production and sales process smoothly.

To minimize the risk of under and overstocking of material: Inventory management manages to minimize the risk caused by under and overstocking the inventory.

To reduce losses, damages, and misappropriation of materials: Inventory management aims to reduce or remove losses of materials and stock by maintaining proper stock of materials with utmost care.   

What do you mean by economic order quantity?

Economic Order Quantity is an inventory management tool that shows the quantity to be ordered each time that minimizes inventory cost. Normally, the ordering cost and carrying cost are equal at the point of economic order quantity. Thus, the economic order quantity is the quantity that minimizes the total inventory cost.