Even a layman will know what an Inventory is. Inventory is the commodities that your company keeps in stock with the intention of selling.
It may only be raw materials that you buy and intend to turn into something entirely new, or it might be a bulk product. It could even be something completely intangible: for instance, software.
Inventory Management is how you track and control your business’ inventory. It controls the entire flow of goods — from purchasing right up to the sale — ensuring that you always have the right quantities of the right item in the right location at the right time. Inventory management is a significant part of your business’s profitability.
Inventory Management vs. Inventory Control - what’s the difference?
'Inventory Control' is how you manage the stock that you already have in your current storage. This involves knowing your stock inside and out — how much is available, where it is and what condition it is in. It’s also about ensuring that you are storing stock efficiently and keeping your inventory costs down.
'Inventory Management' is the broader term. It takes into account your supply chain, fulfilment, manufacturing, reporting, and sales. Almost every business will have to get an inventory management system in place before going into the “control” part.
Types of Inventory
Although there are a lot of different types of inventory, the ones you’ll deal with depend on the goods you sell. Here’s an overview of some of the types that are more common than others:
1. Finished /For-Sale Goods: The products that are ready for sale to your customers
2. Raw Materials: The inventory you’ll need to make your finished goods
3. Work-in-progress: Refers to ‘unfinished goods’ — inventory that is halfway through the manufacturing process
4. MRO Goods: MRO stands for Maintenance, Repair and Operating. This is the inventory you use to support your manufacturing process
5. Safety Stock: The additional inventory you keep aside to deal with supplier shortages and/or sudden surges in demand
Why is Inventory Management so important?
Inventory management commands how you run your business. Inventory Management is important to:
Help you run your business smoothly
Most small businesses depend on manually counting stock to track what’s in store. But manual stock counts are time-consuming and can lead to errors. If your business doesn’t manage its inventory properly with the aid of technology, it will quickly fall apart.
Grow your Company
As businesses grow bigger in size, their inventory management gets more complex as well. This makes it more important to get control over their physical inventory. Rapid growth usually brings a lot of time-consuming tasks: hiring staff, negotiating with new suppliers, moving to bigger premises, etc. So putting an effective stock system in place early is key.
Makes your customers happy
Inventory management gives you the direction on how quickly you can get your products to your customers, how reliably you can fulfil orders, and how much visibility you can give to your customers. Customers are more likely to come back if they trust your company to consistently deliver orders on time and let them know what’s available.
Managing your Inventory
1. Keep track of your Stock
It is very important to review and keep track of the stock already available. Keeping a record of product information such as their expiration dates, barcodes, price, etc., will help you in maintaining a well-managed inventory.
2. Track your Sales
This covers much more than simply adding up your sales at the end of the day or the end of the week. You need to monitor which items sell off at what season or in what situation, what products your customers are liking more, and which items are being sold off together. Analyzing all these factors will help in better inventory control.
3. Analyze your supplier behaviour
An unreliable supplier can cause more problems than you can think of. If your supplier is habitually late with deliveries or frequently shorts an order, it’s time to look into the matter. If need be, you might have to change your supply partner.
If actions are not taken against this, you might have to deal with uncertain stock levels and also the possibility of running out of inventory.
4. Prioritizing your Inventory
Prioritizing your inventory can help you understand which items you need to order more of, which are more important to your business, etc.
Experts generally suggest categorizing your inventory into A, B, and C groups. ‘A group’ items are higher-ticket items that you need fewer of. The ‘B group’ items are what’s in between: items that are moderately priced and sell out slower. Items in the ‘C group ’are the lower-cost items that turn over quickly.
5. Utilize the Safety Stock Methodology
Make sure that you set aside some portion of inventory in case of an emergency. It's a good idea for your business to work safety stock into your warehouse management strategy in case your supply chain is disrupted.
6. Utilize the First In, First Out Methodology (FIFO)
This is the methodology in which the oldest inventory is sold first to help keep inventory fresh. This is of great importance to businesses dealing with perishable products, as those will spoil if they aren't sold within a specific time period. Following this methodology also prevents items from becoming obsolete before businesses have the chance to sell them.
This typically indicates keeping your older merchandise at the front of shelves and shoving
new items to the back.
7. Invest in good Inventory Management Technology
A good inventory management software makes the inventory management tasks easier. Before you choose a software solution, make sure it provides the analytics that are important for your business and that it’s easy to use.
The Closing Lines
We hope that this article has provided you with some valuable information and some inventory management ideas for your D2C Brand. Inventory management, though seems like a simple concept, is in fact quite complicated.
The right management of inventory is important so that your business does not incur losses. If the inventory is not managed properly then goods costing a lot of money could go to waste.