What exactly is an Inventory Management System (IMS)?
Inventory management system is constantly changing Sales, returns, new receipts, and even damage and theft affect your inventory levels throughout the day. While difficult, effective inventory management and inventory control are critical jobs in any retail or wholesale business.
Inventory management becomes more difficult to manage as your business expands and the amount of inventory you handle expands. Using technology to your advantage can make life easier for you and your employees. This is why any retail business needs an inventory management system.
This manual will teach you everything you need to know about inventory management systems. We'll go over the various types of systems available to you and which might be the best fit for you. We'll also go over the key features that systems must have in order to improve efficiency and overall customer satisfaction.
What exactly is inventory management?
If you're just starting out in retail or wholesale, you might be wondering, "What is inventory management?" or "What exactly is inventory control?"
Effective inventory management and inventory control are synonymous – and the definition is straightforward.
Inventory management is the process of tracking the amount of product on your warehouse shelf, in store, or with other retailers and distributors. This allows you to have the right number of units in the right place, at the right time, and for the right price.
When you track and control your physical inventory effectively, you'll know how many of each item you have, when you're running low on products, and whether you should replenish that item to keep selling it.
Why Is Inventory Management Necessary?
Inventory management is critical to the health of a business because it ensures that there is rarely too much or too little stock on hand, reducing the risk of stock outs and inaccurate records.
Inventory tracking is required for public companies in order to comply with Securities and Exchange Commission (SEC) rules and the Sarbanes-Oxley (SOX) Act. Companies must document their management processes in order to demonstrate compliance.
Benefits of Inventory Management
Inventory management has two primary benefits: it ensures that you can fulfil incoming or open orders and it increases profits. Inventory management also includes:
Money is saved:
Understanding stock trends entails determining how much and where you have something in stock, allowing you to make better use of the stock you have. This also allows you to keep less stock at each location (store, warehouse) because you can pull from anywhere to fulfil orders — all of this reduces inventory costs and the amount of stock that goes unsold before it becomes obsolete.
Enhances Cash Flow:
With proper inventory management system, you spend money on inventory that sells, ensuring that cash is constantly moving through the business.
Customers are satisfied:
One aspect of developing loyal customers is ensuring that they receive the items they desire without having to wait.
Read More : Warehouse Management System Software
Inventory Management Challenges
The primary challenges of inventory management are having too much inventory and not being able to sell it, not having enough inventory to fulfil orders, and not knowing what items you have in inventory and where they are located. Other impediments include:
Obtaining Accurate Stock Details:
If you don't have accurate stock details, you won't know when to refill stock or which stock sells well.
Poor Processes:
Outdated or manual processes can cause errors and slow down operations.
Changing Customer Demand:
Customer tastes and needs change all the time. If your system can't track trends, how will you know when and why their preferences change? Using Warehouse Space Staff wastes time if similar products are difficult to locate. Mastering inventory management can assist in overcoming this difficulty.
Making Good Use of Warehouse Space:
If similar products are difficult to find, employees waste time. This problem can be alleviated by mastering inventory management.
What Exactly Is Inventory?
The raw materials, components, and finished goods that a company sells or uses in production are referred to as inventory. Inventory is classified as an asset in accounting. Accountants use stock-level information to record accurate valuations on the balance sheet.
Stock vs. Inventory
In retail, inventory is frequently referred to as stock: Managers frequently use the term "stock on hand" to refer to products such as apparel and housewares. Across industries, "inventory" refers to both stored sales goods and raw materials and parts used in manufacturing.
Some argue that the term "stock" is more commonly used in the United Kingdom to refer to inventory. While there is a distinction between the two, the terms inventory and stock are frequently used interchangeably.
What Are the Different Inventory Types?
Raw materials, work-in-progress (WIP), finished goods, decoupling inventory, safety stock, packing materials, cycle inventory, service inventory, transit, theoretical, excess and maintenance, repair and operations are the 12 types of inventory (MRO). Some people are unaware that MRO is a type of inventory.
Inventory Management Procedure
When a company produces on demand, the inventory management process begins when a customer order is received and continues until the order is shipped. Otherwise, the process begins when you forecast your demand and then place POs for the necessary raw materials or components. Other steps in the process include analyzing sales trends and organizing product storage in warehouses.
How Inventory Management Works
Inventory management seeks to comprehend stock levels and stock location in warehouses. Inventory management software tracks the flow of products from the supplier to the customer through the manufacturing process. Inventory management in the warehouse keeps track of stock receipt, picking, packing, and shipping.
Inventory Management Techniques and Terminology
To plan stock, some inventory management techniques employ formulas and analysis. Others rely on procedures. All methods aim to improve accuracy. The techniques used by a company are determined by its needs and stock.
Read the guide to inventory management techniques to find out which technique works best for your company. Here's is the details
ABC Evaluation:
This method works by determining which types of stock are the most and least popular.
Tracking of batches:
This method groups similar items together in order to track expiration dates and locate defective items.
Shipments in Bulk:
This method takes into account unpacked materials, which suppliers load directly into ships or trucks. It entails purchasing, storing, and shipping inventory in bulk.
Consignment:
When using consignment inventory management, your company will not pay its supplier until a specific product is sold. That supplier also retains ownership of the inventory until it is sold by your company.
Cross-Docking:
You will unload items directly from a supplier truck to a delivery truck using this method. Warehousing is largely eliminated.
Demand Forecasting:
This type of predictive analytics aids in the prediction of customer demand.
Drop shipping:
The supplier ships items directly from its warehouse to the customer in this practice.
Economic Order Quantity (EOQ):
This formula determines how much inventory a business should order in order to reduce holding and other costs.
FIFO and LIFO:
FIFO (first in, first out) refers to moving the oldest stock first. LIFO (last in, first out) refers to moving the newest stock last. Because prices always rise, the most recently purchased inventory is the most expensive and thus sold first, according to the last in, first out (LIFO) principle.
Just-In-Time Inventory (JIT):
This method is used by businesses to keep stock levels as low as possible before restocking.
Lean Manufacturing:
This methodology focuses on removing waste or any item from the manufacturing system that does not provide value to the customer.
Minimum Order Quantity:
To keep costs low, a company that relies on minimum order quantity will order small amounts of inventory from wholesalers in each order.
Reorder Point Formula:
This formula is used by businesses to determine the minimum amount of stock they should have before reordering and then manage their inventory accordingly.
Perpetual Inventory Management (PIM)
PIM is a technique that involves tracking stock sales and usage in real time. To learn more about this practice, read "The Definitive Guide to Perpetual Inventory."
Safety Stock:
An inventory management system philosophy that prioritizes safety stock ensures that there is always extra stock set aside in case the company is unable to replenish those items.
Materials Requirements Planning (MRP):
This system is in charge of manufacturing planning, scheduling, and inventory control.
Also Read : warehouse management system for small business
The Advantages of Effective Inventory Management
Keeping track of your inventory is critical to your retail success. After all, your primary responsibility is to supply products to meet consumer demand. You can't do it unless you have good inventory management.
The top eleven advantages of effective inventory management are listed below. They all add up to demonstrate the importance of accurate real-time stock tracking, which can be easily accomplished by utilizing dedicated inventory management software.
Better money invested
To be successful in retail, you must invest your money wisely by purchasing the appropriate quantity of each product – enough to keep sales going and prevent stock-outs, but not so many that some items simply sit on the shelf, increasing carrying costs.
Keeping accurate inventory reports is beneficial. You can quickly identify slow-moving products and mark them down to clear them out, freeing up cash to invest in new products, marketing, and other initiatives.
more precise reports
If you use cost of sale accounting, accurate product reports result in accurate inventory cost values, which are critical to the precision of several financial reports.
This method associates a cost with each sale that is derived directly from the asset value of the product.
As a result, accurate cost values are critical to your balance sheet, as well as your cost of sales and income statement, which are the foundations for many management decisions.
Early detection of problems
If you keep an eye on your inventory levels, you'll notice issues sooner rather than later, during annual cycle counts, when the discrepancies may have already cost you a lot of money.
Is it possible that a step in your warehouse process is being skipped? Is there a mistake in your reorder point formula? Or is one of your salespeople making errors on sales orders? You must know right now!
What is the best method? By constantly reconciling sales and purchases using an inventory management system that is meticulously maintained.
More satisfied customers
Exact inventory reports will also assist you in providing better customer service. When a customer complains that they haven't received one of the products they ordered within a certain time frame, it's not enough to contact your supply chain management. If the product is missing, you must be able to check your report and confirm that you have an extra in the warehouse. Similarly, if you keep track of inventory levels on a regular basis, you will be able to identify incorrect shipments sooner.
You'll be able to sell customers the products they want because you'll know new inventory is on the way if you keep your inventory system up to date with purchase orders. This type of communication fosters customer trust, which is an invaluable asset in these competitive times.
Reordering is simple.
If your reports tell you what products are available, reordering will be much more efficient. When your inventory numbers are correct and a certain threshold limit is reached, you can use automation to initiate a new purchase order to replenish your goods and keep sales flowing.
This means you can go through your product set methodically, making informed purchasing decisions rather than physically checking individual SKUs on your warehouse shelves to write a purchase order.
You can also see if you have products on order with a supplier and if your supplier has long lead times or inconsistent deliveries of finished goods if your reports are generated by advanced inventory management software. This understanding is critical if you want to keep reordering under control.
Theft and loss mitigation
Products can be lost in a variety of ways, including theft, loss, and damage. However, if you maintain accurate inventory levels, you can quickly identify problems.
And, while no one wants to think that their employees might steal from them, it pays to be cautious. Demonstrating to your employees that you keep an accurate inventory is an excellent deterrent to theft.
dependable information systems
Sharing and utilizing accurate information is essential for running an efficient and profitable business. One method is to use a software system that integrates with everything from point-of-sale systems to barcode scanners.
If your employees know that the inventory levels in your system are always up to date, they will have more faith in the software and will use it for all of their tasks. As a result, you'll have cleaner data for better reporting, collaboration, and efficiency across the team.
Warehouse costs have been reduced.
When your inventory report tells you exactly what you have on hand, the pick, pack, and ship process runs more smoothly.
Your warehouse staff does not need to search for a missing inventory item because you know when it sold and shipped.
This allows you to process more orders in the same amount of time with the same staff – or to rebalance your resources. Accurate inventory levels can help your company stay lean! Learn how to optimize your warehouse with Bright pearl.
Cycle counts and year-end efficiency
Periodic cycle counts are faster and more efficient when all of your inventory levels are always up to date because you're just confirming data that's already in your system rather than doing a lot of time-consuming data entry.
Peak season effectiveness
When high order volumes occur, such as during peak trading seasons, flash sale events, or when celebrities wear your products, your inventory numbers will be able to keep up in order to keep profits flowing across all channels – but only if the numbers are correct to begin with. Demand forecasting is critical for lowering the total cost of running a business.
Inventory management can be overwhelming for growing retailers, particularly those adding locations or channels. We hope that these eleven inventory management benefits demonstrate that the efficiencies you'll gain will be well worth your time and effort. A small amount of attention paid to this foundational component of your business can yield significant results.