Inventory management refers to the process of ordering, storing, and using a company’s inventory. These include the management of raw materials, components, and finished products as well as warehousing and processing such items. For companies with complex supply chains and manufacturing processes, balancing the risks of inventory gluts and shortages is especially difficult. To achieve these balances, firms have developed two major methods for inventory management: just-in-time and materials requirement planning: just-in-time (JIT) and materials requirement planning (MRP).
An inventory account typically consists of four separate categories, raw materials, work-in-process, finished goods and merchandise. A company’s inventory is one of its most valuable assets. In retail, manufacturing, food service, and other inventory-intensive sectors, a company’s inputs and finished products are the core of its business. A shortage of inventory when and where it’s needed can be extremely detrimental. Inventory can be thought of as a liability (if not in an accounting sense). A large inventory carries the risk of spoilage, theft, damage, or shifts in demand. Inventory must be insured, and if it is not sold in time it may have to be disposed of at clearance prices—or simply destroyed.
For these reasons, inventory management is important for businesses of any size. Knowing when to restock certain items, what amounts to purchase or produce, what price to pay—as well as when to sell and at what price—can easily become complex decisions. Small businesses will often keep track of stock manually and determine the reorder points and quantities using Excel formulas. Larger businesses will use specialized enterprise resource planning (ERP) software. The largest corporations use highly customized software as a service (SaaS) applications. Appropriate inventory management strategies vary depending on the industry. An oil depot is able to store large amounts of inventory for extended periods of time, allowing it to wait for demand to pick up.
The center for Excellence in Operation & Management has vast experience in inventory management and we provided quality support to many of the organizations as per their need. Our highly professional and experienced consultants are waiting to support your organization.