Inventory Management: Functions and How to Manage It

Inventory Management: Functions and How to Manage It

Inventory management is a crucial aspect of running a business. The success or failure of a company is often related to how inventory is managed. In a competitive business world, effective inventory management can be a powerful strategy to beat competitors.

To support the success of your business, on this occasion, AdIns will outline the definition of inventory management, its objectives, functions, and implementation strategies that can improve company performance.

Definition of Inventory Management

Inventory management is a series of activities that involve planning, organizing, and controlling all processes related to the inventory of goods or products in a company.

It includes actions such as procurement, storage, and distribution to ensure product availability per market needs and demands. In other words, inventory management involves strategies to optimize inventory quantities to achieve operational efficiency and customer satisfaction.

Functions of Inventory Management

Inventory management plays a critical role in optimizing company operations and minimizing risks that may arise during the procurement and storage process. Here are some of the main functions of inventory management.

1. Avoiding Delivery Delays

One of the main functions of inventory management is to avoid delays in delivering products to customers. Maintaining adequate inventory levels allows companies to ensure the availability of goods that match demand, avoid losses due to delays, and increase customer satisfaction.

2. Avoiding the Risk of Damaged Ordered Goods

Inventory management also plays a role in reducing the risk if the material or goods ordered are damaged. This can happen by carefully monitoring the condition of the goods from the beginning of the procurement process so that the company can take steps to prevent damage or replace damaged goods before they are sent to customers.

3. Avoiding Price Increases/Inflation

The next function of inventory management is to help companies overcome the risk of price increases or inflation. By purchasing enough inventory for a certain period, companies can protect themselves from price fluctuations that may occur in the market. This ensures the stability of production costs and selling prices, which in turn can affect the profitability of the company.

4. Storing Seasonal Raw Materials

For businesses that use seasonal raw materials, inventory management is key in keeping enough inventory to meet demand during high season periods. This ensures smooth production and product availability when needed.

5. Achieving Profit through Discounts

Inventory management allows companies to benefit from discounts from suppliers. These can be obtained from buying in bulk or planning procurement wisely.

6. Providing Satisfactory Customer Service

A crucial function of inventory management is to provide services that satisfy customers. Inventory management will maintain consistent product availability so that the company can build a good reputation in the eyes of customers. Customer satisfaction is an important factor that can influence loyalty.

Read Also: The Importance of Customers’ Loyalty and How to Maintain It

Objectives of Inventory Management

Implementing inventory management can provide significant benefits to your company as seen below.

1. Managing Inventory

The main objective of inventory management is to achieve optimal inventory levels. This involves careful planning to maintain a balance between having enough inventory to meet customer demand and avoiding excess inventory that can lead to high storage costs. Managing inventory well can create efficiency in workflow and increase the speed of response to market demand.

2. Operational Efficiency

Inventory management aims to improve overall operational efficiency. This includes efforts to minimize lead times, optimize resource usage, and speed up production processes. This way, companies can respond faster to changes in demand, avoid production delays, and maintain efficient operational processes.

3. Cost Control

One of the key objectives of this strategy is to control inventory costs. This involves intelligently managing the purchase and storage of inventory. You can make a good evaluation of your inventory needs to avoid buying large quantities that may not be sold quickly. This cost control can help improve profitability and keep inventory costs balanced.

4. Reduced Risk of Inventory Loss

Another objective of inventory management is to reduce the risk of inventory loss. This risk can come from theft, damage, or obsolescence of goods. This can be achieved by enforcing strict monitoring of goods.

In addition, companies can identify potential risks early on through security policies, proper storage, and periodic maintenance to prevent unwanted losses.

Strategies for Implementing Effective Inventory Management

Effective inventory management involves implementing smart and adaptive strategies. Here are some inventory management implementation strategies that can give you an edge.

1. Use Just In Time (JIT) System

The Just In Time (JIT) strategy is an effective approach to minimize excess inventory. This strategy makes the company only produce or order goods when needed, which in turn will reduce storage costs. To support the JIT system, you must have good coordination with suppliers.

2. Utilize the Latest Technology

Implementing the latest technology, such as a computer-based inventory management system, has a huge impact on operational efficiency. These systems enable real-time inventory monitoring, more accurate demand prediction, and automation of procurement processes. Using this technology allows companies to reduce human error, improve accuracy, and optimize inventory management.

Read Also: 7 Notable Examples of Big Data in Business

3. Use ABC Analysis

ABC analysis helps companies classify inventory based on its volume value. Here are the steps to perform ABC analysis:

  • Identify All Inventory Items: Start by identifying all inventory items owned by the company. This includes raw materials, work-in-progress, and finished products.
  • Calculate the Annual Monetary Value or Volume: Determine the annual dollar value or volume for each inventory item. This value can be calculated by multiplying the unit price by the amount produced or sold during the year.
  • Determine the Boundary between ABC Classes: Determine the boundaries between ABC classes. For example, you may decide that class A covers 70-80%, class B covers about 15%, and class C covers about 10% of the total dollar value or volume.
  • Group Items into ABC Classes: Group each item into one of the ABC classes based on the predetermined boundaries. items with the highest rupiah value or volume go into class A, followed by class B, and class C.

4. Maintain Good Relations with Suppliers

Good collaboration with suppliers is a key factor in ensuring smooth supply and getting better prices. Good relationships also allow companies to get early information about changes in the supply chain that may affect inventory.

At this point, it can be concluded how inventory management involves planning, organizing, and controlling the inventory of goods or products in a company. To maximize inventory management, several strategies are needed, such as implementing a JIT system to establishing good relationships with suppliers.

In the face of ever-changing business dynamics, inventory management is no longer just a necessity, but a requirement to be able to compete with competitors. Therefore, AdIns comes as a modern solution that can help companies optimize inventory management through ARS (Advance Reporting System) application.

This application inserts a cutting-edge system into the company’s operational tools to ensure better understanding of data and operations. In addition, we provide the latest information regarding regulations and adapt to the changes. Contact AdIns now and request a demo here!

Inventory Management, Inventory Management: Functions and How to Manage It, Advance Innovations

Author :

Ad Ins

Published date :

15 March 2024