Inventory Management
Benefits of Inventory Management
Inventory management is primarily
about specifying the shape and percentage of stocked goods. It is
required at different locations within a facility or within many
locations of a supply network to precede the regular and planned course
of production and stock of materials.
Inventory Management A clerk doing inventory work with a handheld computer in a Tesco Lotus supermarket in Sakon Nakhon, Thailand.
Inventory management intends to hold optimal inventory levels continuously. The scope of inventory management concerns the
fine lines between replenishment lead time, carrying costs of inventory, asset management, inventory forecasting, inventory valuation,
inventory visibility, future inventory price forecasting, physical
inventory, available physical space for inventory, quality management,
replenishment, returns, and defective goods, and demand forecasting. Balancing these competing
requirements leads to optimal inventory levels, which is an ongoing
process as the business needs shift and react to the wider environment.
Inventory management, with the primary objective of determining/controlling stock levels within the physical distribution system, balances the need for product availability against the need for minimizing stock holding and handling costs. Inventory management involves systems and processes that identify inventory requirements, set targets, provide replenishment techniques, report actual and projected inventory status, and handle all functions related to the tracking and management of material.
This would include monitoring material moved into and out of stockroom locations and reconciling inventory balances. It also may include ABC analysis, lot tracking, cycle counting support, etc. All of these practices lead to optimal product storage, helping minimize holding and handling costs.
Inventory management can also help companies improve cash flows. Companies with effective inventory management do not have to spend large capital balances to purchase enormous amounts of inventory at once, which also saves handling and holding costs.
Key Points
- Inventory management is primarily about specifying the shape and percentage of stocked goods.
- Inventory management leads to optimal inventory levels.
- Management of the inventories, with the primary objective of determining/controlling stock levels within the physical distribution
system, functions to balance the need for product availability against
the need for minimizing stock holding and handling costs.
- Inventory management can also help companies improve cash flows.
Terms
- ABC Analysis – a business term used to define an inventory categorization technique often used in materials management. It is also known as Selective Inventory Control. Policies based on ABC analysis: A ITEMS, very tight control and accurate records; B ITEMS, less tightly controlled, and good records; and C ITEMS, simplest controls possible and minimal records.
- Holding Cost – in business management, holding cost is money spent to keep and maintain a stock of goods in storage.