Inventory management is a supply chain system where inventory and stock quantities are tracked in the warehouse. It can also be defined as the systemized ordering, storing, and selling of finished and material products.
Every business has at least some level of an inventory management system. An effective inventory management system can provide actionable business intelligence. Additionally, it keeps counts on product records.
Important features of inventory management
Important features of inventory management may include:
Picking and packing: Direct workers to the correct warehouse inventory management system to pick and pack items.
Shipping: this includes aspects like the invoice, packing sheets, and many other aspects involved in shipping.
Managing warehouse location: this involves placing items in the correct warehouse to reduce wastage.
Receiving orders: this includes managing incoming orders and directs them to the proper fulfillment center.
Tracking inventory: this is the real-time inventory status of each product.
Reporting tools: provides inventory data to gain insight that improves decision making.
Barcode tracking: it coordinates with the shipping and accounting system and manages the barcode input data.
Types of inventory management system
The most common types of inventory management systems include:
Full inventory & cycle counting
Full inventory counting is often done annually and according to the financial audit. An inventory team usually counts all of the items in the warehouse when the business is closed. This process is timely and extensive since all of the inventory is counted at one time.
Cycle counting is used to count an inventory segment frequently. For example, a retailer can count one type of product on Wednesday, another type on Thursday, and so on. With the larger warehouse, high valued products can be count more often than others. Both smaller and regular inventory counts give the business comprehensive views of its stock. You can expect a potential for human error in both cycle and counting inventory. Inaccurate inventory data causes difficulty for the entire business. Therefore, it is important to use an accurate software system in the counting process.
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Manual inventory counting
This is a system that is updated and controlled without using a technical system. To perform this task, counters may use a ledger or spreadsheet.
Small businesses sometimes prefer a manual approach since they don’t have as much stock to concern themselves with. The manual inventory can neither be conducted internally, nor the business can hire an outside vendor to get the job done. Small businesses usually close two days annually to do a manual inventory check. Each step in this task is likely to have human error. Data may be incorrectly attributed, or counters may count items incorrectly. Unfortunately, a miscounted piece of stock can affect other steps of the manual count. In most cases, the business has to recount because of the mere mistake that was made.
Finally, manual data doesn’t always give useful information that gives a clear view of the inventory, supply, and customer demand.
This is a system that uses a reader to scan a barcode that is attached to each package. To speed up the process, workers can wear a barcode reader.
One advantage of the barcode system is that the count is performed in real-time because the input data is uploaded immediately into a database. If there is an item that has already been scanned, the worker will get an alert.
Since there is less potential human error, management is confident in purchasing and selling more or less inventory.
Radiofrequency identification tag
Radiofrequency identification uses radio waves to read and capture data in a tag attached to a package. There are two types of radio frequency identification tag, active and passive.
The active system uses tag scanners that are located throughout the storage facility. The vendor or the in-house inventory counter often receives real-time updates of the stock counts and their locations.
A passive system is only read when the scanner is turned on. With both processes, the inventory is automatically documented in a database when the tag is read. The passive system requires the worker to turn the reader on himself.
Robots scan labels without attached barcodes using machine learning. Warehouse robots have quality sensors and high response capabilities than any other form of the inventory counting system. Furthermore, they upload and all data accurately and quickly by integrating with the warehouse. This counting inventory strategy reduces labor costs since they automatically perform inventory counts without human supervision.
How to manage inventory
Different companies have different inventory management strategies. Regardless of the scope of the business, the best inventory management practice will always include:
This is a categorization analysis strategy that divides stock into three categories:
- A item
- B item
- C item
Category A is the accurate record and highest level of control. Category C is the least.
Products with the highest amount of revenue are placed in category A
In this method, products are stored in two areas of bins, depending on the item’s size.
When the bin is empty, new products are placed into it. When the second bin is empty, the company orders new supplies.
Fixed order quantity
This is a system where the maximum and minimum inventory levels are set in stone.
When the inventory reaches a fixed minimum number, the company orders a fixed number of new items.
Fixed period of ordering
With this inventory process, products are ordered according to a given amount of time. This can be monthly or weekly.
This is an ideal system for small business that doesn’t have the resources to implement a new inventory management system.
Vendor managed inventory
Through this system, suppliers can manage inventory instead of putting the responsibility on the business.
Benefits of inventory management
Software system plays an important role in managing inventory. This has many benefits, including:
- Less potential human error
- Boosts workers’ morale
- Improved customer satisfaction
The bottom line
Inventory management and warehouse management seem like interchangeable terms, but they’re not. A warehouse management system supports warehouse operation. And the warehouse operation includes inventory management. In other words, warehouse management is the key term for everything that happens in a warehouse, in which inventory management is one of them. So don’t confuse the two terms (warehouse management & inventory management)