Top Inventory Management Techniques You Need To Know

Inventory management is a technique of stocking, delivering, and tracking of materials that are required in the production of a good. Inventory management techniques are customizable, and hence companies are free to adopt a mixture for best commercial results.

The significance of inventory management

Inventory management is significant for manufacturing units as it blocks cash. Keeping too little or too much inventory could be unfavorable for a company; too much stock could result in the loss as it might not be used up within a stipulated time, and too little inventory could hamper production and supply.

Maintaining the correct quantity of material stock is therefore crucial and involves professional guidance. It is essential to keep a flow of inventory, compared to the flow of cash for any commercial body.

Financial Benefits Efficient inventory management is a trusted way of saving money. Many materials are perishable or get spoilt beyond a specified period. Stocking such materials in vast quantities becomes a loss if they are not used within a stipulated time.

Spoilage is a loss and is avoided through management techniques. Loss of money could also result from the creation of ‘dead stock’. Even if materials might not perish, their usage could stop due to change in tastes and preferences of buyers.

An excellent example is still cameras. Though the components are non-perishable, they are no longer used. Identification of dead stock materials requires experienced managers.

Storage involves money. Maintaining excess stock increases not only the area of storage but also the possibility of damages. Either storage facilities need to be improved, or stock must be reduced for keeping it in a working condition. Saving the storage space ultimately leads to the saving of money.

Improves cash flow Thorough knowledge about your inventory would help in timely procurement and liquidation of materials. Regular acquisition and disbursal of stock are vital for regularising of cash flow. The forecast is critical in determining production and hence the requirement of inventory. Cash flow planning is integral to any business.

Techniques of inventory management

There are several inventory management techniques which could be adopted depending on various situations.

ABC Analysis ABC or Always Better Control analysis is dependent on the classification of inventory items. ‘A’ type items are of high value but used in small quantity. ‘B’ type are of moderate value and used in moderate numbers, while ‘C’ type is of low cost but used in large quantity.

These three categories of items need differential treatment as far as storing is concerned. ‘A’ being of high value needs greater storage attention while ‘C’ needs minimum.  

JIT Just in Time (JIT) is a technique that puts minimal effort on inventory. Materials are procured ‘just in time’ of production. It involves plenty of risks too, as materials could get exhausted when they may be needed most.

Drop shipping In this technique, the concept of creating inventory is eliminated. Here, customer orders are directly routed to a producer and do not involve any intermediaries in between.

The choice of technique is market driven and could be varied depending on the existing operations. A company could even mix and match these inventory techniques as your business demands.

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