A Complete Guide To Inventory Management

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A Complete Guide To Inventory Management

• https//www.imprezz.in/ Imprezz

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Inventory is the lifeline of every business which
helps in the smooth functioning of business and
meet the need of customers. The effective
management of your inventory determines
the success of your business. The importance of
managing your inventory should be a primary
objective to overcome the gap between supply and
demand. Any laxness in terms of inventory
management puts the risk of either overstocking
or understocking  contributing to increased
holding cost. In this guide, we help you
understand everything about inventory management
with relevant information necessary for your
business.
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What is Inventory Management?

• Inventory management is a process where you track
  your inventory and stock in and out of the
  warehouse. The objective of tracking your
  inventory is to understand the total inventory at
  a given time and what are the levels of your
  inventory.  Earlier companies were dependent on
  the traditional pen-paper approach to track their
  inventory, but, with the rising complexities,
  companies have adopted various inventory
  management software.
• If companies dont manage their inventory, it
  might be difficult for them to predict whether
  the existing level of inventory will meet the
  demand in the future or not. Consequently, the
  companies might see a fluctuating level of
  inventory sometimes below the desired level and
  sometimes more than required. Hence companies
  should adopt a stringent inventory management
  practice.

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What is Inventory?

• The term inventory is used multiple times in this
  blog. What actually accounts for inventory Raw
  materials, finished goods, or stock for the
  purpose of selling? Inventory is basically goods
  that a company handles with the objective of
  selling which might include raw materials
  acquired to manufacture goods or the final
  product from which various constituents are
  extracted. It might even include intangible items
  like software, patents, trademarks, and
  copyrights.

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Different types of Inventory

• Inventory can be classified further based on
  their end-use. Lets understand the different
  categories of inventory
• Raw Material This includes inventory that is
  used to make the finished product.
• Work-in-progress Inventory that is unfinished
  and is in the process of manufacturing.
• Finished goods/Goods for sale This includes the
  final product which is ready to be consumed by
  the end-user.
• MRO Inventory Manufacturing, Repair, and
  Operating inventory that helps in the
  manufacturing process.
• Safety Stock The inventory that is stored in the
  warehouse to meet the supply shortages and
  increased demand during the uncertainties.

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Key Stages of Inventory Management Process

• The inventory management process starts right
  from the beginning when the stock moves from your
  suppliers to the warehouse. The companies keep a
  track of their inventory management process at
  five stages.

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• Purchasing 
• It means tracking inventory when it is purchased
  as a raw material to turn into products or sell
  with no further processing required.
• Production
• Not all companies are involved in the production
  stage. Some companies make finished products from
  raw materials or constituents, hence it is
  important to track the inventory at this stage.
• Holding Stock
• It constitutes the raw material stored before it
  is used in the manufacturing process or finished
  stock before it is sold.

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• Sales 
• Once you sell the stock to the customer and get
  the payment, its time to keep a track of your
  inventory.
• Reporting
• Under this step, the business estimates the total
  sale made and the amount received against that
  sale.

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Inventory Management vs. Inventory Control

• Most people use these terms interchangeably, but
  it is important to know that both terms have
  distinct meanings and are two different processes
  of inventory.
• The inventory management process starts from the
  beginning till the stock is out and sold to the
  end-user. However, Inventory control is limited
  to managing stock which you currently have in the
  storage. Inventory control is limited to
  understanding how much stock is available, where
  it is and what condition it is in. The objective
  of inventory control is to reduce the cost of
  holding excessive inventory, minimize the time in
  estimating the total inventory in the warehouse.
• Inventory management is a broad concept that
  encompasses your supply chain, manufacturing,
  fulfillment, sales, and reporting. Later, it is
  followed by inventory control where you focus on
  optimizing the purchase, control, production, or
  sales.

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• Basic terminologies used in Inventory Management
• Once you deep dive into the inventory management
  process, youll come across basic terms and
  formulas. It is important to have a clear
  understanding of these concepts to ease the
  process.
• Cost of Good Sold (COGS)
• Also, known as Cost of sales refers to the direct
  cost of producing goods, which includes the cost
  of raw material and labor.
• Days inventory outstanding (DIO)
• It refers to the average number of days the
  company holds inventory before selling it.

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• Economic order quantity (EOQ)
• Economic order quantity refers to the optimal
  order quantity at any given point in time, which
  helps to minimize the total holding and ordering
  cost.
• Finished goods
• It refers to manufacturing items/products that
  are ready to sell.
• Inventory accounting
• As stated above that the inventory is available
  in three stages Raw materials, Work-in-progress,
  and Finished goods. The inventory accounting
  system keeps a track of changes to inventory at
  all three stages and adjusts their asset values
  and costs accordingly.

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• Inventory Cost
• Inventory cost refers to the cost involved in
  procuring, storing, and managing inventory. It is
  also categorized into three categories namely
  ordering cost, carrying costs, and shortage
  costs.
• Inventory Management Software
• Automated software to track inventory levels,
  orders, sales, and deliveries. The software helps
  in maintaining minimum stock levels and sends the
  notification every time the stock is below the
  desired level.
• Lead Time
• The time period between an order placed and when
  the order is received is called lead time.

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• Point of sale
• Point of Sale is the time and place in which a
  retail transaction is completed.
• Purchase order
• A purchase order is a document created by a buyer
  requesting a vendor for the delivery of goods or
  services. It specifies the type and quantity of
  products, the agreed price, and delivery and
  payment terms.
• What Next?
• To understand more about inventory management,
  take a look at our inventory management software,
  which has all the added features to keep your
  inventory in control and save time.

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