Inventory directly relates to money and eventually to success of the business. A successful business manages inventory so effectively that it creates happy customers who become brand custodians.
Do you aspire to take your business to that height? Follow the blog to know everything about inventory and its management.
If inventory managers were like Uncle Scrooge, having powers to do inventory count in just one dive, there was no need of having an Inventory Management System in place.
But cartoon characters are imaginary, and the real problems need real solutions.
In this fast-moving business scenario, inventory managers relying upon manual and paper-based processes struggle a lot in inventory management.
They miss out timely inventory count, prediction, and most of the time these data are erroneous, resulting in total chaos and losses in terms of raw material or opportunity.
Thus, inventory managers need a smart solution, like an Inventory Management System, to take up these challenges.
This blog discusses in detail everything about inventory, its management and technological assistance inventory managers can get to face boldly the most dreadful nightmare – inventory management.
So, slip in the details to explore.
What is Inventory Management?
The process of keeping a track and managing all the goods a company has in stock is known as inventory management. Along with the system and processes, organisations keep a track of their inventory; it involves all the goods a company currently has or the ones that are on order.
This is done by an inventory management software, usually an ERP like BatchMaster ERP, which helps record and track inventory levels, sales, and purchases.
Type of Inventory –
Type of inventory largely depends upon industry in consideration. For a logistics or merchandising industry, inventory is the end product needed to be delivered to customers.
For a manufacturing industry, inventories are raw material, sub-assemblies (WIP), finished goods, MRO goods (maintenance, repair, and operating goods), transit inventory, buffer inventory, anticipatory inventory, decoupling inventory, and cycle inventory.
Let us understand each type for more clarity.
Raw material –
These include material used to produce intermediate and finished goods.
These are the raw materials that are in process of being turned into finished good.
The product which is ready to be delivered to the customers.
Maintenance, Repair, Operating (MRO) goods–
It refers to supplies, spares and other materials needed to perform regular operation and repairing work. This inventory is important for smooth running of business.
Unlike raw material, MRO goods does not become a part of finished good.
Inventory which is in transit refer to this inventory. After receiving, such inventory rest in warehouse.
Buffer inventory –
It is the extra inventory kept at bay to meet surge in demands. It expels probability of stock-out and helps in smooth business function.
Based on past market trends, expected surge in prices or deficiency of materials, if businesses invest in some stocking, then such inventory is known as anticipatory inventory.
It is usually the raw material or the finished goods.
It is the term used for extra inventory kept at each production line station to prevent stoppages.
It is the inventory ordered in lots to minimize storage and carrying cost. In other way, it is inventory to neutralize the carrying and storing cost for optimizing inventory ordering cost.
Be it any inventory type, an efficient inventory management system like BatchMaster ERP enables you to manage different items with easy tagging, classification, and item analysis.
Each method is intended to easily track material, reduce waste, and fasten picking process. BME allows you to track inventory based on:
- Bin location ID
- Serial or lot number
- LIFO, FIFO, FEFO
- ABC analysis
With the help of BME, you can classify items, manage multiple units of measure, get the item details, setup variation method, identify standard supplier, set allocation method, various cost, and substitute for an item.
Due to the flexibility and versatility, it offers in classifying inventory, BatchMaster ERP is the most loved ERP software, which also manages inventory meticulously, among the manufacturers globally.
BME offers amazing capability of effective warehouse transfer. It facilitates inventory inspection and adjustment task with handheld devices.
Besides these, BME supports inventory count. Cycle count and physical counts are executed meticulously.
Aim of Inventory Management –
Typically, there are 4 common goals inventory management aims at:
Improve the accuracy of your production and order fulfilment cycle-
BatchMaster ERP provides exact data of available inventory for order fulfilling.
Basis this data, manufacturers can either run production cycle, order material, or fulfil order with the on-hand inventory.
Keep inventory organised, using space to the fullest-
The inventory module of BatchMaster ERP (BME) helps in organising inventory by sorting it on various factors, applying QC before allowing inventory in and facilitating bin transfers, if required.
It also handles inter-warehouse transfer or intra- warehouse movement very effectively.
Cut down waste-
BME helps track items in inventory as LIFO, FIFO, and expiry. In case of perishable items, FEFO method is widely used. So, the item which is near to expiry will be processed first.
This cuts down the wastage.
Save time and money by lowering production time
The baseline aim of inventory management is universal, but as different businesses have different aims, so is the case with inventory management also.
The aim of inventory management for all businesses are the same on macro level, but through a microscopic lens, they might differ from organisation to organisation.
Why Inventory Management is Important?
Inventory management decides the viability of your business. It can be asset or liability, depending upon how you manage it.
The better you are at managing your inventory, the better you will be in delivering and responding to customer orders.
Following are the main benefits of inventory management:
Create happy customers-
Customers today are very choosy and impatient. With growing options, they have at their disposal, they need their demands to be fulfilled almost instantaneously.
At such a juncture, the business which has well managed inventory and can deliver the right product at minimal time is the game winner.
It can foster happy customers which eventually lead to repeat business and a fodder for future leads.
With ERP like BatchMaster ERP, processes like inventory identification, its staging, picking/packing/shipping all processes become faster.
Such fast processes withing the organisation eventually make faster deliveries and bring smile on the face of consumer.
Effective control on inventory will reduce time and cost involved in manual inventory tracking, which most of the time is erroneous.
By managing inventory effectively, businesses can invest time in much useful and productive work.
By properly managing inventory, businesses can understand which products are fast sold, which have low response, and which are doing well.
By understanding this, they can plan procurement and reduce overstocking which requires immediate investment.
Besides money required for stocking, overbuying also demands storage costs. With well managed inventory, all these costs can be reduced, and the liquid money can be used on other requirements.
Various inventory reports of BatchMaster ERP help to identify the fast sold goods, generate inventory cost for analysis, and plan for procurement with concise requirement.
This planning helps to avoid overstocking, or understocking.
Besides, the software helps to stock seasonal items, trigger economic order quantity, and control co-product and by-product during production.
Foster growth –
Well manged inventory fosters growth. With such inventory, businesses can respond to the demands at a wink, can add new product line and grow.
Inventory management techniques-
Since inventory is a crucial part of a business, there are many techniques of managing it.
These techniques are useful in maintaining the profit for a business.
Just in time (JIT) –
This inventory management technique aims to fulfil the demands exactly when it is generated, also known as zero inventory. It reduces waste, overstocking, and maximise efficiency by maximising inventory turnover.
Economic order quantity (EOQ) –
This method is based on premise that business should buy precise inventory to minimize storage, order, transportation, and other associated cost.
Safety stock inventory-
It stores just ample amount of inventory before stock dry out. It protects stockouts and serves as a cover supply against unexpected demands.
BME supports these techniques by:
- Setting Reorder Point (ROP) – This is the level of inventory, below which an alert is generated for re- purchasing the item.
- Reserving inventory lots- The software always gives an alert before using safety stock.
- Defining EOQ.
Inventory Management for Manufacturing
Since every business is unique, techniques and tips for all can be different. Here are some tips that can serve as ready reference for you:
Identifying and tracking inventory
BME lets define unique ID numbers that can be assigned to each product variation. This helps segregating various products and collecting it fast when an order is generated.
With the help of BME you can assign bin number, UID and attributes, and then assign these inventory items to specific bin location. Besides, BME helps associate an item with:
- Warehouse or location
- Costing Methods- Last, Average, Standard, Market, etc.
- Tracking Method- Serial, Lot Method
- Lot Issue method- LIFO, FIFO, FEFO
- Classifications such as ABC analysis
- Lot attributes/characteristics
- Tracking from Pallet, Bin, lot to serial level
BME allows defining various unit of measure in terms of Weight, Volume and discrete.
It allows storing in one unit, buying in other and selling in complete third unit.
It even allows one click conversion of one unit to other at all levels- inventory, production or shipping, thereby saving manufacturers from a lot of manual calculations and associated errors.
BME helps keep a tap of new trends, customer preferences and make necessary changes as per the current and expected demands to assimilate changes.
Effortlessly perform Cycle and Physical Count:
BME offers a dedicated module for Physical and cycle count that can adapt to your Physical count method and streamline every step of it.
Starting with the segregation of inventory to be counted, generation of tags, tallying of perpetual and physical inventory, banning any transactions for executing during the count-in-process and lot more.
Integration with Handheld devices:
BME supports all kind of hand-held devices used for scanning inventory.
It saves users from hundreds may be thousands of keystrokes.
The inbound and outbound transactions happening in the warehouse can be recorded right where and when they are happening, always giving a real-time view inventory to all the associated departments.
Rely on cloud-
Make use of cloud technology to manage your business from anywhere, anytime. Cloud-based inventory management system can come to rescue inventory management related issues.
BME offers cloud-based ERP solution. This solution comes as SaaS, on subscription model, hence it is cost effective and gives mobility.
The cloud-based ERP is highly secure, safe and comes with 24*7 customer support and regular backups.
Success of a business largely depends upon the effectiveness of its Inventory management.
BatchMaster ERP, along with providing inventory management solution, provides numerous benefits that a manufacturer can leverage to manage not only inventory, but all business activities.
BatchMaster is a process manufacturing ERP. It has been providing business specific solutions, including inventory management solution to many process manufacturers for last 30 years.
Along with above-mentioned functionalities and uses, there are many more that BatchMaster ERP offers. To know them all, please connect.
What is Inventory Count?
Inventory count is the process of physically counting and checking the conditions of goods parked in warehouses. It helps tally physical and perpetual inventory or inventory on records.
This process gives a fair idea of available inventory/stocks in the warehouse and its condition.
For accounting purposes, inventory count helps assess debts and assets.
Inventory count helps inventory manager to identify which stock is moving fast and based on this information they forecast stock needs and manage budgets.
What is Average Inventory Cost?
Divide goods available for sale by number of inventory units on hand, and the result is average inventory cost.
Average inventory cost can be useful to compare cost of goods available for sale at different locations or different time periods.
What are the Key Considerations for an Effective Inventory Management Software?
An effective inventory management software must have reporting, forecasting, analysis, and accounting capabilities along with inventory alerts and automatic reordering.