What is inventory management?
An organization’s inventory comprises of its most valuable assets. Contingent upon the nature of the business, inventory can vary from raw materials to finished products. Having the right volume of inventory at all times, however, can be a challenge. Overstocking can lead to wastage and loss of money. Understocking, on the other hand, can lead to a company not being able to perform its daily operations properly – and consequently, a loss of business. For this purpose, it is extremely crucial to maintain an optimal amount of inventory as per the needs of your business workflow.
To prevent such negative consequences for the firm, it is important to implement a systematic strategy to control how inventory is utilized. Regardless of the size of a business, companies adopt robust policies to ensure that assets are deployed and utilized in the best manner. Generally, inventory management comprises of the following:
- Controlling and monitoring procurement
- Storage of assets in the warehouse
- Setting up the product for the final sale or dispatch
To carry out these steps, companies tend to mainly focus on three main aspects which are quite significant for business outcomes:
- Calculating the correct amount of inventory.
- Determining the correct price for purchase.
- Identifying a reorder point for the stock.
Different types of stock
Before you jump into the lengthy process of designing an inventory management policy, you should first understand the volume and type of inventory you own. An organization can own various types of inventory or can specialize in the production of a single one. Commonly, the inventory stock is divided into the following categories:
- Raw materials: These are commodities which are produced by the firm or its subsidiaries. Companies also often purchase items directly from vendors. Partially finished goods, if not taken into production by a firm, are also labeled as raw materials.
- Work in process: As the name suggests, this type of inventory consists of all components and assemblies waiting to be processed within the system. It is usually the stage before the final inspection and finishing.
- Finished goods: Once, after the raw materials are taken in and transferred into production, organizations can ship off their final goods. From here on out, items are sold to retailers, wholesalers or distribution centers.
In addition to this, inventory can be further classified according to the purpose they serve in a company:
- Transit inventory
- Buffer inventory
- Anticipatory inventory
- Decoupling inventory
- Cycle Inventory
- MRO goods
Read more: Importance of Inventory Management
Challenges of stock management
Working with numerous components can be quite a tedious task. The inefficient tracking of inventory can lead to higher chances of error which make your records unreliable. To learn how to address these issues, it is important to list them down first. Some of the inventory management challenges identified by firms are as follows:
- Lack of real-time data: Not having accurate information regarding specific inventory statuses can lead to negative consequences for the firm. Not being able to account for supplies, or why an asset was checked out means that the company is missing out on critical data. Moreover, compromised reports can result in an imbalance in stocks and cause delays in order shipments.
- Adopting manual processes: This includes listing down changes in inventory either by hand or onto an Excel spreadsheet. Such processes put unnecessary stress on the employees and create a greater chance of human error in the database. Incorrect entries can be a cause for concern if the impact is transferred onto the customers through damaged orders.
- Failure to access information: All departments need to work in coordination with each other when it comes to inventory management. Doing so is critical because logistics managers, production houses and warehouse managers all require information from each other to carry out certain tasks. Many firms suffer from a lack of centralized access to updated information at all times.
- Inaccurate forecasting: When it comes to stocking up on a particular asset, determining the right amount is always tricky. This is mostly due to fluctuating market demands and trends. Not being able to define optimal stock levels can cause untimely shortages. Such circumstances lead to delays in workflows and lower productivity.
What is inventory management software?
Organizations invest in automated systems to keep an accurate track of their assets. A standard inventory management software uses barcode technology to record all movements within and across locations. A good software mainly consists of cloud-based business applications to streamline procurement, utilization, and disposal. Continuous monitoring allows you to better insight into business activities and leads to improved decision making. Active participation in asset management policies enables companies to reduce operating costs while increasing the rate of return. According to research, 70% of firms, after moving their supply chain to the cloud, reinvest their savings back into their business.
Five core features of inventory management software
Choosing the appropriate type of software for your organization is a complicated process if you don’t know where to begin. The first factor to consider is the business goals and objectives you want to attain. Next comes the utilization strategies you would want to adopt in achieving those. An inventory tracking system, in this regard, offers you a variety of features to accomplish your targets:
1) Track usage through barcodes
A systematic program to monitor your inventory items includes either RFID or barcode tracking. What this basically means is that you label each and every asset you own with a unique identification number. This may be the product serial number or location code. Once you decide how to tag your assets, the next step is to implement a mechanism to record this information. Commonly, organizations design a simple check-in and checkout procedure to help them track asset usage. Scanners can be set up at the entrance of the warehouse so that employees sign each item against their name. Such a transparent framework can reduce errors in administration by 41% and cut down on inventory loss through theft or misplacement.
2) Replenish stock on time
The quantity of stock that a company decides to retain can be really important to its progress. For this purpose, firms should clearly follow the guidelines for a seamless procurement process:
a) Recognizing the need
b) Specifying the product
c) Listing down source options
d) Negotiating price and terms
e) Creating purchase orders
Carrying out all these steps can be quite challenging manually, which is why most organizations switch to automated programs. The best inventory management software lets you set stock threshold levels. Such precautionary measures let you order new inventory before you run out. Shortages cause delays in daily work tasks and pull-down worker productivity as well. Create automated purchase orders to prevent untimely stock outages.
3) Enable lifecycle management
Working with perishable inventory items means a greater emphasis on timelines. Grocery stores which stock up on food items need to vary of lifecycle management in order to sell their goods on time. Keeping the system updated on the consumption of inventory is important so that replacements can be made in time. A management software comes with depreciation tracking and lets you record expiry dates. Pharmaceuticals and canned items can be entered into the system with their respective details. This makes it easier for the organization to dispose of expired goods.
4) Check in inventory for regular maintenance
Preventive maintenance is the ideal way to keep all your assets in good shape. Instead of waiting for the equipment to break down in the middle of an ongoing project, regular service sessions help reduce downtime. By using the best inventory management software, firms schedule maintenance sessions for all their assets. This can be done as soon as the goods are purchased. Such practices increase the uptime and efficiency of machines which makes them last longer. Having information regarding service vendors makes it easier to choose the appropriate option to get your tool fixed. Follow well-defined maintenance patterns to lower large-scale repair costs and gain a higher rate of returns.
5) Define user rules to streamline tasks
In order to facilitate smooth functioning of an organization, employees need to know their exact job description. When it comes to stock control, it is imperative to define user roles and daily assignments. For instance, the inventory manager is responsible for evaluation, preparation, and documentation of the company’s assets. To prevent someone from another department creating a purchase order by mistake it is best to restrict access. This can be done using an automated inventory management software, to create work order schedules. By using this feature companies can designate job titles for different tasks and allow access to authorized personnel only.
Boost performance: Implement key inventory best practices
In addition to choosing the best inventory management software, organizations should put in some effort into its proper implementation. One way to do this is to follow a set of guidelines on how to design strategies to optimize utilization:
1. Warehouse Design: Since most of your inventory is stored at the warehouse, it is critical that its setup should be laid down in a specific manner. If not carried out in the correct way, warehouse management can be a complicated task. Here are some simple rules to keep in mind when setting up inventory:
- Place the fast-moving items towards the front of the warehouse for easier access.
- Think of most commonly used bundles of assets and stock them together so that it’s easier for employees to locate them without wasting time.
- Designate a floor location for items that are too large to occupy shelves.
2. Use the right labels: Once you have come up with the warehouse design, it’s time to come up with how you want to label both locations and items for easier access.
Locations: A barcode can adhere to the front of the shelf with the location code on it. For items which are not placed on shelves, tags can be placed on the floor. For each type of labels, you need expert help to decide which is the right for a particular inventory.
Items: First decide how you want to label your assets; this can be individual or group. After that, you decide which codes to add to the barcode. Sometimes, items come with the manufacturer code. For greater flexibility, you can adjust this with your own barcode scanner.
3. Inventory count: The first step towards running successful business activities is to define a standard operating procedure for them. Same goes for your inventory count; You can choose from either periodic or cyclic. Periodic counts include keeping records monthly, quarterly or annually while the cyclic counts take small inventory updates at frequent intervals.
4. Track key metrics: To be able to gauge business progress, it is important to analyze how performance is affected by management policies. For this you need to track the following:
- Top and bottom line growth
- Maintained gross margin
- Measures of overstock if available
- Age of inventory
Read more: Inventory Management Tricks and Tips
The major aim of implementing a robust stock control strategy is to maximize efficiency in business operations. One way to do this is to maintain accurate records by monitoring assets movements through an automated inventory management software. Having barcodes enables you to keep your system updated anywhere anytime. This means you are in a better position to forecast business requirements with real-time data on hand. With the ability to generate performance reports, organizations can study how asset utilization patterns have evolved over time.
By studying these, firms can take decisions on which items to dispose of in the next season, or what to order more of each turn. The ultimate goal of any business is to attain the highest rate of return. It is only possible if the firm continually works on eliminating obsolete practices which slow down growth and costs the company unnecessarily.
Learn more about EZOfficeInventory’s inventory management software!
EZOfficeInventory is an online inventory tracking software that helps thousands of companies track hardware assets and manage inventory, conduct maintenance events, cut costs and streamline processes all over the world. We offer a free 15-day trial – no credit card required!