In manufacturing businesses, the inflow and outflow of materials is continuous. This makes inventory management and recordkeeping important but also difficult. This is why each company requires a system of checks and balances to maintain an efficient record of inventories' ins and outs. With inventory management, businesses can keep track of profits, sales, and demand over time, as well as track how long items sit on shelves.
In this blog post, you will understand the objectives of inventory management and essential techniques. These techniques help businesses to increase profit margins and get on the track of success.
What is Inventory Management?
Inventory management is the process of managing the flow of goods. It involves organizing, storing, and managing the inventory of your manufacturing business. The goal is to make sure that the right items are available at the right time to fulfill customer demands. A business’ inventory includes raw materials, WIP inventory, finished goods and Maintenance, Repair, and Operation (MRO) Goods.
An important objective of inventory management is to avoid overstocking and understocking. Inventory management also includes using other tools like barcode or RFID technology to help keep track of the stock. Inventory data can also be used to find trends and predict demand and requirements on the basis of that.
What is the Principle of Inventory Management?
Inventory management involves many tasks and fundamentals. Here are the five most important principles of inventory management:
1. Demand Forecasting: This involves the use of historical data, and market trends to predict future sales accurately. It optimizes inventory levels based on these forecasts to help businesses reduce the risk of overstocking and stockouts.
2. Warehouse Flow: This refers to the efficient organization and movement of goods within a warehouse. This is important for manufacturers that have a number of warehouses. This helps businesses have a smooth and organized inventory.
3. Inventory Turnover: This shows the number of times inventory is sold or used in a year. A higher inventory turnover rate suggests that a business is selling its products quickly and not holding onto stock for too long.
4. Cycle Counting: Counting is a regular process of counting inventory items in different sections of a warehouse. Instead of conducting a full-scale audit, cycle counting lets you maintain accurate inventory records and find errors.
5. Process Auditing: This involves regular checks of all inventory transactions, from procurement to dispatch. It makes sure that every step of the inventory management process is accurate.
What are the objectives of the Inventory Management System?
An inventory management system has many features, each with its own feature. They can help in achieving many goals. Here are the objectives of inventory management:
1. Material Availability: A lack of material can cause disruptions in the production process. However, enough inventory makes sure that the production process can continue.
2. Minimum Wastage: A successful inventory management system helps with monitoring. Regulation of unmanageable materials help businesses prevent and reduce waste production.
3. Maintaining Stock: The system makes sure that supplies are available for all stages of production, from raw materials to finished goods.
4. Cost-Effective Storage: It helps you store the material in the best way to avoid duplication, extra costs, etc. With the right management techniques, companies can avoid overstock, and duplicate stocking orders and can help to minimize storage costs.
5. Better Sales: Calculating the volume of product sales is another useful purpose of inventory control. It also helps make future assumptions from the analysis of critical elements.
What are the Techniques of the Inventory Management System?
Businesses today use various inventory management techniques to fulfill demand. Some of these inventory management techniques include:
1. Just-in-Time (JIT) Delivery
Just-in-Time is a method, in which you order the quantity when needed for the production process, thereby reducing inventory costs. This technique reduces inventory levels since businesses can buy products when they are in demand. This leads to more empty spaces and reduced waste products
2. ABC Inventory Analysis
ABC Analysis helps you evaluate your products according to their requirement. It helps businesses categorize their items in Category A, B and C. Class A items are few but generate most sales, needing close management. Class B items contribute moderately to sales with moderate management. Class C items are many but generate few sales, needing minimal attention.
3. Drop-Shipping
With drop-shipping, a manufacturer keeps the finished products in stock to sell to customers. The drop-shipping process involves selling goods online without maintaining inventory. When the store comes across a product demand, it buys the item from a third party and is shipped directly to the consumer. This method prevents the merchant from seeing or handling the product.
Inventory Management With TranZact
Inventory Management requires keeping track of raw materials and finished products to update inventory records. This can be streamlined by an inventory management system.
TranZact is a tool that can simplify your production process and material availability using principles of inventory control.
TranZact is an affordable, easy-to-implement software that is specifically made for Indian SME manufacturers and traders. It has the functionality to update real-time inventory. It helps Indian SMEs find items in high demand and products on hand. It also provides you with reports based on historical data to help you predict demand. If you are looking to streamline your inventory management, you should definitely look into TranZact’s free plan.
FAQs
1. What are the 5 Objectives of Inventory Management?
The five objectives of inventory management are:
- Maintaining optimal inventory levels
- Improving cash flow
- Reducing storage requirements
- Minimizing waste and shrinkage
- Reducing product shelf-time
2. What is the purpose of the inventory management system?
The main purpose of an inventory management system is to manage the ordering, stocking, storing, and using of inventory efficiently. It helps businesses know what items are in stock, their quantities, and their location.
3. What is the objective of the inventory control system?
The objective of an inventory control system is to make sure of a steady supply of materials and subassemblies from the warehouses without interruptions for fulfilling manufacturing orders on time.
4. What are the 2 primary goals of inventory management?
The two primary goals of inventory management are to have an adequate supply of inventory to fulfil customer demand and to minimize unnecessary inventory and its associated expenses.
5. What are the 4 techniques of inventory management system?
The four techniques of inventory management system are:
- Just-In-Time (JIT)
- Materials Requirement Planning (MRP)
- Economic Order Quantity (EOQ)
- ABC Analysis.
6. What are the 3 most important inventory control techniques?
The three most important inventory control techniques are:
- Push technique
- Pull techniqueJust-in-time technique
