Inventory Management

What Is Inventory Management?

Inventory Management is the process of overseeing a product from order to delivery. This includes knowing how many of each product is on hand, where the product is at throughout the order, knowing the packaging and shipment process and how much is in the current pipeline to forecast for consumer demand. It is managing the constant flow of units into and out of an existing inventory.

Good inventory management ensures the number of units is high enough to support demand but not so high as to increase the the expense of warehousing. Concurrently, inventory needs to be sufficient enough so that the levels are high enough not to put the company into a short supply situation. Beyond inventory flow, costs need to be controlled in regards to inventory keeping in mind the total value of goods and the tax burden associated with the cumulative value of inventory.

There are several key areas that need to be kept in mind and managed regularly by an Inventory Manager:

Accurate Systems

A tally of newly produced products must be updated promptly in a management software system as well as recording outbound product that has been shipped. Returned goods must also be entered in a special category to be reclassified as refurbished or second grade quality. Accurate reporting enables an Inventory Manager to quickly communicate to the Sales Department what goods are on hand at any given time. These records are also used to access taxes due on each type of inventory to help avoid easily made tax reporting errors. This becomes crucial during independent audits of the facility.

The critical elements of a good inventory system are essential to running an effective business. It is necessary to have a well organized list of location names. A company should have location labels that are easy to read. Unique and brief item numbers should be assigned to each item with good units of measurement. You should have a healthy starting count to work from and software that tracks all inventory activity. It’s also important to have a reliable staff that follow good policy practices.

When you have an organized system this eliminates the time it takes to locate items and reduce errors in stocking. Labeling even the open areas will help you to identify areas that can be used when a new shipment comes in. This will help everyone to work faster in filling and shipping orders so your operation runs efficiently without errors and reducing delays.

Accurate item descriptions and numbers come in handy when searching for inventory making transactions, filling orders, filtering or searching reports quicker. Keeping these short will cut down on mistakes and make it easier to identify them at a glance. Six characters maximum is recommended and usually what most software systems can handle. Using easy to identify and consistent units of measure will make stock levels, shipping quantities and ordering quantities easier to follow. This will all make getting a good idea of stock levels better organized and efficient. Good inventory software keeps everyone on the same page and keeps an accurate historical record of everything.

Make sure staff is trained properly and consistently on the system in place. They must know what to do with items as they are received, reserved for future use, taken from stock and required for production. It will also help to clearly state who is responsible for making certain transactions and such. Recording policies is a good practice to follow to make sure even if you just have a few people, they know what is expected to avoid any frustration down the line.

Time Management

An Inventory Manager needs to know how long it takes to process an order and execute delivery of that order. They also need to be aware of how long it takes for an item to be shipped out of inventory. This helps establish lead times so they know when an order needs to be placed and replenished to keep production running smoothly.

Padded Stock

There is always that inventory that needs to be on hand in between shipments in order to make sure that backordering does not become the norm. It also helps to address emergency situations like defective units. This aspect is essential to minimize the interruption of production.