What Does Inventory Management Refer To?

For those who may still be fresh in the business world, inventory management is whereby business makes orders, stores them, and later sell its assets.  Some companies deal with raw materials, while some handle finished products.  In simpler terms, it means your business has the required number of goods at the appropriate time.

Inventory management can be broken down into various groups as follows:-

  • MRO goods-These are for maintenance and repair purposes during production
  • In-transit goods- Products that have been sold and are on their way to the customer
  • Buffer Inventory- Also known as back-up stock
  • Decoupling inventory-All about spare parts
  • Unfinished products- Not yet complete thus not ready for sale
  • Cycle Inventory- Goods that get sold out fast
  • Finished goods- They are mainly stored in a warehouse
  • Raw materials- Those used in manufacturing other products
  • Anticipation inventory- In excess for when goods are on demand

Once you are clear where each product falls, you can go ahead and store each according to their category for smooth management.  Next, you need to decide on an ideal method for managing your stock.

Best Techniques For Inventory Management plus their pros and cos

You cannot reap the benefits of management techniques if you lack the right tactics. This step is going to teach you how you can go about this for maximum profits. Whether you are a beginner or you already established, you need these tips.

The ABC Technique

You may have heard of this term in business, but do you know what it stands for?  The ABC formula, sometimes called the selective inventory control is mainly used to group items into various categories. It could be finished products, unfinished or spare parts. It is an accurate inventory optimization method and allows proper pricing.

Category A– These are company products that are considered to be crucial for business.  That is, they bring the most profit.

Category B– These are items in the business that are of an average value.

Category C– By now, you already have an idea of what these may be. Group C is for the small products that do not bring significant profit when sold separately.

One of the biggest challenges of this method is that it requires critical thinking. If you have no idea where each item falls, you may not enjoy the required harvest. That could result in time consumption. As they say, time is money, so you better get it right.

Backorders technique

Sometimes a store may run out of a particular product at an unexpected time. If that happens and the demand is high, more of that product must be restocked. Although this could mean an increase in sales and adaptability for small businesses, there is the risk of late deliveries, which in turn could lead to customer complaints.

JIT Inventory technique

In business, some goods are bound to get damaged, which is bad for business.  By using the JIT (Just In Time) rule, a business owner gets to oder goods a few days before the shelves run empty. The advantages of this includes reduced holding costs, an increase in sales, and minimally damaged products. Pros may include delayed orders because there are chances of restocking late. Also, the method requires serious attention to the shop to be always full.

Cycle counting technique

Cycle counting, just as the name suggests, is a method where you take stock of products in cycles. Doing so enables you to reaffirm whether the records you have, match with the stocks at hand. It is probably the least time-consuming method of all four.  It also reduces holding costs. However, it might be less accurate compared to taking stock of everything at once.

Importance of Managing Inventory

Now that you have a rough idea of what it means, why is it essential for companies to track their inventory? The primary reason is that businesses can meet the required orders on time.  However, it doesn’t end there. Businesses have more to gain when they take this initiative because:-

  • They have a better chance of accurately planning their stock. There is no doubt that one can’t tell how much more supply is left by just looking.  This could mean stocking more items than needed, which could be slow-selling. Taking charge of that ensures you invest your money when and where it is needed.
  • Sellers can meet the required sales. It would be shameful if a potential customer orders an item only for you to realize it is out of stock, right? With the right system in place, this is a scenario you would never have to encounter.
  • The buyers will be satisfied. An online shop, for instance, should always strive to have deliveries done on time and in perfect shape. Should anything unfortunate happen during the delivery process, you can be sure that the buyer will not come back to your shop again. You also risk earning a bad review.
  • When all inventories are in place, production houses can focus their energy on other important areas of the company. That, in turn, saves time and resources.


Possible challenges you may encounter and how to solve them


Errors are common when you decide to record results manually either through an excel sheet or writing on paper. You risk getting excess results or worst still, reduced numbers. That can be resolved by introducing an automated system for real-time updates.

Inability to use the system in place

Automated systems are the best to use. But not everyone knows how to use them.  They come with a lot of features that could go to waste if adequately maximized. If you are in such a predicament, the solution is to train yourself or ask the developer to help you learn how to use the software.

Untrustworthy supplies

Things happen, and your supplier may fail to deliver the goods on time. Sadly there is is only much you can do in such a situation. Thankfully, you can avoid that by tracking the supplier’s delivery activities. Some have receipt records that can show you the duration of orders. Only then can you decide whether or not to change suppliers.

From the look of things, inventory management systems can not be ignored. They are literary the backbone of every business. Not only does it help improve sales, but it also helps with unnecessary expenditures. For your business to hit future goals, invest your time in managing your stock.

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