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What is Inventory Management?

Inventory management is the process of tracking and managing your business' inventory and stock. This process involves various aspects, including regulating and tracking of ordering your inventory and stock, analyzing how it can be stored and regulating how much inventory is available for sale. Ultimately, Inventory Management is the process of making sure that the right amount of inventory is available in the right place, at the right time and at the lowest cost.

Why do you need to control and manage your inventory?

Inventory management will give you a centralized view of your business' stock and inventory. This will allow you to keep track of your stock numbers and where exactly this stock is. Inventory management is particularly necessary if your business' distribution centres are in different locations, as this will allow you to direct certain stock into certain sales channels.

A detailed inventory management system will also give you a better understanding of which of your products are proving successful and which are not. This will allow you to plan your future inventory investments based on which are doing well.

Inventory management can also be extremely helpful in relation to your business' delivery services. For instance, companies can easily gain a bad reputation through delivery delays as a result of stockouts. An inventory management system will allow you to keep on top of inventory shortages and prevent potential late deliveries.

This process can also be used in order to forecast your business' performance. You can easily analyse which of your stocks are doing well, allowing you to concentrate your attention on these areas and ultimately improve revenues.

When you manage your business' inventory, you will also be able to limit your storage costs. Efficient inventory management will ensure that you are only storing the stock that you need - i.e. avoiding the buying of surplus inventory, whilst also avoiding lacking stock. Storage costs are often based on the amount of stock being stored. As such, with effective inventory management you will only store the stock that you require and only pay for this storage.

What types of Inventory Management are there?

There are a number of ways to track your inventory, two of the principle ways in which inventory is managed are:

-Periodic Method: This type of inventory management sees inventory data updated periodically, oftentimes being annually. This technique is more useful for smaller businesses where inventory is easier to keep track of.

The Perpetual Method: This involves continual updating and tracking of inventory, and is popular with organizations as it gives up-to-date, accurate inventory information.

What will you gain through Inventory Management?

Reduction in costs: Reduced costs in inventory storage and surplus stock
Improved cash flow: Your stock is often paid for with your business' cash but whilst it is in storage, it does nothing for your business. However, better inventory management can lead to improved cash flow, as you only hold the stock that you need and can sell, meaning you are not holding surplus stock.
Easy inventory tracking: Inventory management software can give you quick and easy access to the key figures relating to you stock.
Demand forecasting: You will be able to analyse current demand for certain stocks in your inventory and build a forecast prediction based on this analysis.
Prevent shortages and excesses: Inventory management will give you the means to analyse your current holdings quickly and easily, making it easy to prevent shortages and excesses in stock.