The Importance of Inventory in Supply Chain Management

The importance of inventory management in the supply chain has to do with the role it plays in the process. As part of the supply chain, inventory management works to facilitate functions such as managing purchases from customers and suppliers, storing inventory, and controlling the sale of goods and order fulfillment. Without inventory management, the entire system would be plagued with inefficiency as there would be no checks and balances to keep everyone accountable and the wheels in motion.

What is Inventory Management?

Inventory management refers to a systematic approach to monitoring and tracking inventory and stock quantities from supplier to customer, or having the correct inventory, at the correct quantities, at the correct time, at the correct cost and price.

How Does Inventory Management Work?

There are five important stages of inventory management:

• Purchasing – Purchasing refers to buying raw materials if goods require assembly or buying products ready to be sold.
• Production – If raw materials are purchased, this stage requires the assembly of the product. If you are a wholesaler, you might skip this step.
• Storage – After the product has been assembled, or the raw materials have arrived at your warehouse, they will be stored until a customer is ready to purchase.  
• Selling – Once a customer is ready to purchase, you will exchange the product for payment.
• Reporting – When the goods have been sold, the transaction will be documented, so businesses are aware of how much they are selling and making.

What Does Effective Inventory Management Look Like?

Effective inventory management should focus on:

Prioritizing inventory – Prioritizing inventory means understanding essential information concerning the frequency and rate at which items should be ordered. It is suggested that your inventory be segmented into multiple groups (i.e., A, B, and C) based on the criteria you set. Using the A, B, C metric system, group A could represent high-ticket items that tend to sit on the shelves for extended periods, and group C could represent lower-ticket goods that turn over quickly.

Tracking and monitoring all product information – Keeping a detailed record (i.e., barcode data, SKUs, suppliers, lot numbers, and the origins of goods) of your inventory is the key to effective inventory management, as it allows you to not only track and monitor the movement of goods from point A to point B, but the cost of goods over time and their scarcity.

Auditing inventory – Conducting routine inventory audits helps mitigate loss and ensure that your inventory matches up with what you believe you should have.

Analyzing supplier performance – The biggest impact on the supply chain is the supplier. Working with unreliable suppliers who are either habitually late on delivering goods or make deliveries that are incorrect or short can be devastating to your bottom line. Analyzing your supplier’s performance will add clarity concerning their dependability and enable you to make the best decision about your future partnership with them.

These are just a few components that contribute to successful inventory management. If implemented and managed correctly these tips could improve your business’s cash flow, increase profitability, and help create a healthier, more efficient supply chain.

What is Poor Inventory Management?

Poor inventory management is simply an inventory management system with no processes in place to keep stock quantities at an optimal level.

What is the Importance of Inventory Management in the Supply Chain?

The importance of inventory management in the supply chain has to do with the role it plays in the process. As part of the supply chain, inventory management works to facilitate functions such as managing purchases from customers and suppliers, storing inventory, and controlling the sale of goods and order fulfillment. Without inventory management, the entire system would be plagued with inefficiency as there would be no checks and balances to keep everyone accountable and the wheels in motion.

For businesses with poor inventory management practices, there is an all-encompassing solution that can help eradicate inefficiency and take your business to its next phase. This solution is known as inventory management software.

What is Inventory Management Software?

Inventory management software is a technological solution designed to manage repetitive tasks such as tracking inventory levels, orders, sales, and deliveries.

Some of the most popular inventory management solutions are:

• Ordoro: For eCommerce.
• inFlow Inventory: Most cost-effective.
• Upserve: For restaurants.
• Zoho Inventory: For small businesses.

Conclusion: The Importance of Inventory in Supply Chain Management

Proper inventory management is a critical component of a healthy business. By following inventory management best practices your business will be set up for future success.

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