Inventory Management – The Importance of Effective Inventory Management

Any business which has stock, products or assets probably has some form of inventory management, even if they don’t realise it. Without it, products may be wasted, money spent unnecessarily, and bottlenecks created in the supply chain. In order to maximise ROI and keep customers satisfied, businesses require effective inventory management.

At Allegro Logistics we help businesses across the UK and beyond to successfully and efficiently fulfil orders for their customers. We are experienced logistics and fulfilment providers and have therefore put together this guide to inventory management and its importance for businesses looking to improve the organisation and administration of their inventory.

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What is Inventory Management?

Inventory management describes the management of ordering, storing and using a businesses’ inventory, from raw materials to finished goods. This can also include warehousing and the processing of items.

Businesses may have inventory that is not physical, such as data and information, which is stored and managed using specialised software. For retail, manufacturing or food service businesses, as examples, physical inventory is the lifeblood of business. With inventory, these businesses can sell products and gain profit. However, inventory can also be a liability, if stolen or damaged, or even mismanaged, leading to wasted products and investment.

Inventory management, therefore, is a careful balancing act between having enough inventory to ensure business can successfully continue, but not too much that time and money is wasted. To effectively manage inventory, one must know precisely when to restock, what amounts to purchase and what price to pay.

What are the Different Types of Inventory?

Inventory management is a holistic process which factors in past, existing and future inventory. By looking holistically and assessing where a business stands in the supply chain according to the inventory they have, a business can make better inventory management decisions.

There are 4 main inventory types:

  • Raw materials – materials used to make finished products, i.e. cotton or leather.
  • Work-in-progress – inventory that is being worked on and not yet ready for sale. This includes packaging materials, labour to craft products, and overhead costs.
  • Finished goods – products ready to be sold.
  • Maintenance, repairs and overhaul – additional inventory that are not products for sale, but used for the creation of products or to aid business, such as office supplies.

How to Manage Inventory?

The actualisation of inventory management may vary according to business size, amount of inventory for sale, and type of inventory. For example, smaller businesses providing only a few products may use excel spreadsheets to manage inventory. Larger businesses, perhaps with more products or faster turnaround, may use software specifically for inventory management.

Methods for inventory management vary according to businesses, with some taking a just-in-time (JIT) approach, whereas others prefer materials requirement planning (MRP). JIT involves keeping only the inventory you need to produce and sell products, which can help reduce storage and insurance costs. However, if demand spikes you may not be able to meet orders, or a bottleneck may be created if one aspect of the supply chain is delayed, offsetting production by days. MRP, on the other hand, is sales forecast dependent, using previous sales data to predict future ones and stocking inventory accordingly, but this can be wrong or not adequate.

Why is Inventory Management Important?

Stock control

A business must know and be in control of how much stock they have. If they have too much, products may have to be destroyed or sold cheaply, wasting a revenue stream. But if they have too little, orders may be unfulfilled and customers are likely to use competitor services instead.

Inventory reporting

Information and insights about inventory can help facilitate important business decisions and highlight areas for improvement which may have otherwise been overlooked. Effective inventory reporting is critical for reviewing previous sales and business as well as forecasting future success.

Cost saving

Properly planned and managed inventory can lead to reduced storage and insurance costs, as you only pay for what you need.

Real time integration

Modern inventory management software can be integrated with other platforms to automate processes such as updating stock levels on an ecommerce website platform. This is also useful for businesses operating across multiple premises, such as a website store and physical store, to track inventory sales regardless of the avenue it is sold.

Saving products

A lot of inventory may be deemed ‘perishable’; not just food but time/seasonally dependent stock such as fast fashion. It is especially important that products with sell-by dates are properly managed and sold so as not be wasted.

Improving customer service

Businesses that can effectively fulfil orders in time due to proper inventory management will be favoured by customers. Those who continually fail to provide promised inventory, inform customers of sold-out stock or do not restock in time risk losing business.

See more: The Importance of Efficient Delivery Management for Ecommerce Business and Online Retailers

Speeding up order fulfilment

Inventory management, with warehouse management, can be useful in ensuring inventory is well-placed and recorded, so it’s not lost or misplaced. This then helps warehouse pickers to find products faster and consequently speed up order fulfilment.

Learn More with Allegro Logistics

Here at Allegro Logistics, we provide expert logistics services and advice from our large warehouse in the South West of the UK, operating freight operations across the globe. With over 60 years of combined experience, our leadership team help small ecommerce businesses to large organisations achieve quick and effective order fulfilment, inventory storage, international product shipping and more.

To assist with effective inventory management, we use an integrated warehouse management system, allowing our warehouse staff to easily locate and record inventory movement, providing our clients with real time information and a full reporting suite. Our ecommerce clients benefit especially from our effective services.

Looking for the perfect logistics provider? Get in touch with one of our friendly team today!

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