Inventory management, in theory, sounds like a simple process which is knowing the value of your stock, knowing when it’s low to order more, or even just trying to keep a balance of everything.
However, it is a very tough task to do properly and even harder if you’re doing it all manually. Inventory control is a more delicate and complicated system that many people fail to understand. On top of that, if your inventory management is weak or falters, then many core functions of your business may be affected.
What Is An Inventory Management System?
Inventory management is a part of your supply chain that helps you determine and keep track of stock your company has stored in warehouses. One of the major goals is to know the exact value of your stock at a given time and location. Companies will then need cloud-based inventory management systems to increase efficiency and accuracy. However, many people confuse between an Enterprise Resource Planning (ERP) System and an inventory management system (IMS).
One of the major differences is that IMS only deals with a specific supply chain process, whereas ERP deals with all the business processes. Furthermore, IMS can also be integrated with other business processes such as shipping and channel management for an integrated system customized according to your business’s needs.
Why Is It Important?
As mentioned before, if you don’t have a proper inventory management system, many of your core business functions will be affected by it, especially individual functions in your supply chain. You can run out of stock without knowing, order the same things twice, or even order the wrong stock.
To ensure proper inventory management, you also need a proper warehouse management system (WMS). Both these things go hand to hand with each other. That’s because if you have a weak WMS, then you might have a messy warehouse with misplaced products. All these errors will be costly in terms of buying wrong things but also be time cost as well.
Inventory Management Techniques
There’s no doubt that an effective inventory management system is necessary for your business to grow rapidly. It doesn’t matter if you’re a wholesale business, furniture retail business, or any other big or small business; you can choose any of these different types of inventory management techniques to your advantage.
Economic Order Quantity (EOQ)
This is a technique used by companies looking to maintain certain quantities of stocks in their houses by considering factors such as the demand of the products and the cost of production. The major goal of EOQ is to help minimize as much cost as possible.
This inventory management technique divides your stock into three different categories according to the value they add to your business. For example, category A refers to the most expensive and valuable items that make the most profit. This is followed by category B, which are somewhat necessary but also make a fair amount of profit. The products in category C are considered the cash cows of the business.
This is considered a great inventory management system due to its cost-lowering qualities. When the companies receive an order, the system orders raw materials, delivered directly to the production facility, then produced and shipped as it’s completed. This whole process does not require you to store anything in your warehouses resulting in a low cost or no inventory cost.
FIFO And LIFO
These are techniques to help monitor the cost of your inventory. First-in-first-out (FIFO) means that the stock that came in first will be sold first, allowing your inventory to always stay fresh. On the other hand, last-in-first-out (LIFO) means that you sell the newest products first. The good thing about LIFO is that it provides better tax liability.
Get An Inventory Management Software
As mentioned before, companies choose to shift to cloud based inventory management system to be more efficient and save costs. You can do that as well with the help of AltheaSuite. They provide businesses with the perfect and simple inventory management software easily understandable by anyone. You can use it for your home furnishing business or your salon and spa business. You can also contact them to book a demo.