The high costs of carrying excess inventory make good inventory management and controls processes critical in today’s competitive business environment.
Important aspects of supply chain management, good inventory management and controls extend from the point of origin (e.g., the manufacturing plant or distribution center) right out to the end user.
Inventory management involves stocking the right inventory levels, paying the right price for that inventory, understanding specific “reorder” points (the points at which specific items should be replenished), and maintaining the right inventory at the right place and the right time.
The process of keeping track of existing stock, inventory control identifies which products are in stock and how much of a certain product is available at any given time (and, where it’s located). Good inventory control helps companies increase their profits while lowering their investments in inventory (and without hurting customer satisfaction levels).
Left up to chance, both inventory management and inventory controls can either tie up cash and hurt organizational profits, or they can save companies money while also improving their profits and bottom lines.
By governing non-capitalized assets and monitoring the movement of product from manufacturer to end user, inventory management requires detailed recordkeeping for every stocked product. Inventory control (aka, stock control) then steps in and helps to reduce inventory cost while ensuring that customer demands are satisfied in a timely manner.
The two terms are sometimes used interchangeably, but inventory control is more tightly focused on increasing profits while keeping inventory levels low (and, without impacting customer service).
Achieving optimal inventory levels is a delicate balance. Buy too little and you wind up with stock-outs and unhappy customers; procure too much and your carrying costs and obsolete inventory levels go up. Through good inventory management and controls, companies are overcoming challenges like:
Combined, these problems can add up to substantial financial losses—all of which can be avoided or mitigated by using a modern inventory management and controls system that enables high levels of inventory visibility on a real-time basis.
Intent on running leaner operations that aren’t saddled down with excess inventory or plagued by wasteful processes, more organizations are examining their inventory turnover and developing good management strategies that satisfy customer demands while also reducing the amount of working capital that’s tied up in inventory.
Consider these two scenarios:
Overstock in anticipation of future demand and your company may wind up saddled with “dead stock” in its warehouse, DC, or retail store. This dead stock consumes working capital and uses up physical space all while sitting still. The products in question may also be on the brink of obsolescence, rendering them unreturnable and useless in the near future.
Keep stock levels too low, however, and you risk running out just when customers ask for the goods. Maybe the current tariff situation has you jittery about foreign supply sources, or maybe your firm’s new ecommerce site is creating new, unprecedented demand levels for certain items. Whatever the culprit, you now have a stable of unhappy customers to contend with.
In the past, companies circumvented these problems by performing physical counts out in the warehouse and then reconciling those counts with paper- or batch-based systems. This task took place on a scheduled basis (e.g., at the end of a set period, such as a month or a quarter), with the result being updated inventory figures.
Today’s inventory management processes incorporate advanced technology. Inventory management software, for example, enables real-time updates of inventory counts on a regular basis. When these activities take place in the cloud, the information can be readily shared with all users and stakeholders across multiple business units and locations.
In absence of a proper software system and tools necessary to manage inventory, companies are forced to rely on manual, antiquated systems of maintaining good inventory levels. Armed with accurate inventory data that’s recorded, tracked, and optimized with a robust software suite, the same organizations can reduce costs, minimize waste, meet customers’ expectations, and more accurately predict future demand.
By incorporating automation—namely, barcode scanners that enable real-time updates—software also removes the potential for human error and gives organizations an accurate picture of their inventory status at any given moment.
In return, organizations can maximize their profits while minimizing their inventory investments. Good inventory management and control practices also help companies protect themselves from fluctuations in demand, reduce the risk of loss, minimize administrative workloads, and avoid ordering duplications. Most importantly, inventory management and controls ensure that customers get their shipments in a timely fashion in today’s on-demand business world.