Inventory Management

Overview of Inventory Management

Inventory management is a systematic approach to sourcing, storing, and selling inventory- both raw materials (components) and finished goods (products).
It involves accurate forecasting of inventory needs to ensure optimal stock levels are maintained.
Effective inventory management aims to minimize the holding costs and maximize the efficiency of operations.

Objectives of Inventory Management

Maintains adequate inventory levels to prevent stock-outs and ensure smooth production and sales operations.
Efficiently manages the cost associated with storing and maintaining inventory- the carrying cost.
Reduces the risk of obsolescence where items become out-of-date and cannot be sold.
Ensures a high level of customer service by having the right products available when needed.

Types of Inventory

Raw Materials: These are the basic components that will be used to produce goods.
Work in Process (WIP): These are partially finished goods that are still in the production process.
Finished Goods: These are completely manufactured products ready for sale.
MRO (Maintenance, Repair, and Operations) Inventory: These include supplies used to maintain and repair the production equipment.

Inventory Management Techniques

Just In Time (JIT): This technique aims to minimise inventory by ordering and receiving goods only as they are needed in the production process.
Economic Order Quantity (EOQ): A model that determines the quantity a company should order to minimise the total costs associated with ordering and holding inventory.
ABC Analysis: A method that identifies and categorises inventory items based on their importance to the business.
Safety Stock Inventory: This is a small surplus quantity held as a buffer to mitigate the risk of stock-outs.

Role of Technology in Inventory Management

Modern inventory management systems use Real-Time Tracking to maintain accurate inventory counts and trigger reordering when levels fall below a set point.
Technology tools such as Radio Frequency Identification (RFID) and barcode scanners help in accurate tracking of inventory items.
Technology-enabled forecasting tools apply complex algorithms to predict future inventory needs based on past trends, reducing errors in manual ordering and forecasting.
Software solutions provide real-time insights and analytics to inform strategic decisions about purchasing, production, and sales.