Inventory management is vital for a business because an inventory very often incurs the biggest expense, and so it needs to be carefully controlled in order for the business to run effectively. Having the wrong inventory, or too much inventory can deplete resources to dangerous levels, so by managing it efficiently, the business will be aware of what stock they need to replenish and what needs to be shifted.
If inventory management is taken seriously and done properly, a business will probably find that it can reduce its costs and increase sales. An effective way of achieving this is by having an inventory management system in place, which will track and maintain inventory so that customer demand can be met. They can also be linked to the accounting or management departments, so that all operations can become more effective, reducing costs and maximising profit.
An inventory management system works by recording customer sales in a real time format, and automatically re-ordering stock when it reaches a pre-determined level. This electronic ordering is called EDI (Electronic Data Interchange) and means that companies will always carry necessary stock, and so will not waste money on ordering what is not needed.
These systems can also differentiate between different styles of the same stock, such as size or colour variations, so a company will not have an excess of one and not enough of the entire range. This process enables management to see what is selling and what is not, so future decisions can be made using facts, rather than hunches, again making inventory more cost effective.
It is also possible to be able to look at trends and see when particular items are selling best, so they can be exploited to realise the most profit.
Inventory Management is the planning, control, organizing and leading the goods and materials required by the business.
Inventory Management is very important for the business. It enables the business to meet or exceed expectations of the customer by making the product readily available.
If managed properly, it can help the organization reduce its costs, achieve economies of scale and prepares the organization for uncertainty.
The objectives of inventory management in traditional organizations used to be to maintain a check and balance system for inventories in order to ensure that a sufficient supply is maintained with the required stocks. Inventories give a true position about a company's business as to how well it is performing. The modern inventory management systems follow a procedure called Just In Time System (JIT) which requires to maintain a minimum optimal level of stocks in order to be efficient, reduce the time taken to service the customers and save on overheads. McDonalds is an example of the Just In Time inventory management system.
It is important to control stock.