Steps Effective Inventory Management and Techniques

admin April 20, 2023 0 Comments

Every company needs to pay great attention to the provision of effective inventory management, in order to ensure that stock quantities are maintained properly and the quality of the products is maintained until they reach the consumer.

Effective inventory management systems track all processes related to the receipt and delivery of merchandise, and stock levels depending on the type of inventory.

In addition to tracking and controlling incoming and outgoing according to documents and invoices, which facilitates the tracking of all daily procedures.

In this article, we will show you all the details about effective inventory management, as well as its most important strategies and techniques, with an explanation of its most important benefits.

What is Inventory Management?

Before we begin to explain the importance of effective inventory management and methods, we will first need to know what inventory management is.

Inventory management is a process by which products are tracked and organized in the period owned by the company.

So that profit is realized and calculated when inventory is sold to customers. Inventory management is an approach to ordering, storing and selling both raw materials and finished products.

Benefits of effective inventory management

effective inventory management

As for the importance of effective inventory management, there are many positive effects that can accrue to all parties in the business operations environment when using it.

Whether it is at the level of the organization and its administrative, manufacturing, sales and warehousing departments, or at the level of customers interested in the items and products of this organization. Therefore there is great importance to the availability of effective inventory management, and here are the main benefits from it:

1. Minimize errors caused by traditional methods

The importance of having effective inventory management systems is to reduce the amount of errors that can occur during traditional warehousing and inventory processes.

Where effective inventory and stock management systems are given an opportunity to review errors that can occur during the receipt, storage and transportation of goods; as computerized systems are involved in counting, reviewing and checking quantities and items in modern inventory systems.

Barcode systems used in inventory and inventory systems also allow recording all data related to goods or products.

The impact of any operations on these items is reflected in accounting as soon as any physical action takes place on them, which helps reduce errors, especially in the presence of high sales, purchases, storage and transfers.

2. Increase customer satisfaction

The process of inventory management is never separate from the satisfaction and service of customers who deal with a particular company or organization, provided that it is effective.

Where customer satisfaction is related to the availability of the goods or products they require, especially those that are in demand on a regular basis.

Where inventory management systems contribute to knowing the need and then supplying the commodity stock of a specific material in the event of a large demand for it.

This helps customers find the orders or products they want quickly and at any time.

3. Improve the review and audit process

The process of reviewing and auditing the operations that take place on the inventory is affected by the type and development of inventory systems, as some organizations resort to the use of tracking systems for all movements on various items.

This facilitates the review of operations on them and protects them from loss or theft. Modern inventory management processes also ensure greater care for financially valuable products.

By linking it to trackers that can locate and track its movement during transportation or delivery service, providing greater flexibility in audits, audits and inventory.

It is also possible by using modern inventory management systems to conduct a tracking and periodic review of some items to ensure their safety.

4. Save money and improve cash flow

By reducing losses, these effective systems provide the feature of tracking products that are close to their expiry date.

Thus bringing it to the fore for disposal first, so these systems help you keep track of your inventory automatically.

Effective inventory management also helps you identify which products are at the top of sales and which are least in sales.

Thus creating a strategy about the products you need to order, as well as the money you should keep on hand.

5. Evaluation of the company’s business

Effectively functioning inventory management systems result in excellent business valuation and financial analysis of your organization.

This is done by studying some financial rates and ratios related to inventory by the organization’s management.

One of the most notable is the inventory turnover ratio, which reflects the organization’s ability to convert its merchandise inventory into cash.

Inventory Management Process

Your company needs to fully follow the inventory management process through the system, in order to be able to manage the inventory effectively.

An effective inventory management process includes oversight of warehousing capacity and production, as well as follow-up on product sales.

This process takes place in two main stages, namely:

  1. Obtaining the basic components and raw materials to stock them.
  2. Selling quantities of finished products to final consumers on demand.

Steps in Inventory Management Process

As for the steps of the inventory management process, it is divided into two main steps, and each step has other sub-steps. where:

Step One | Determining the progress of the inventory management process

In which the identification of the tasks to be performed by each department is checked. The production department also sends the finished products to the sales department. The departments concerned are:

  • Purchasing, which is the department responsible for purchasing raw materials to be stored in the warehouse.
  • Production, this department specializes in using raw materials to develop and make finished products for sale.
  • Warehousing, this section stores goods until they are distributed to end users.

Step Two | Assign duties to professionals

After the departments are identified, you will need to create job descriptions for the tasks that each individual performs, as well as create job descriptions for any new recruits for the number of jobs involved.

Inventory Management Techniques

effective inventory management

The following are the most important techniques that are used in effective inventory management:

1. Setting Base Levels for Estimation

It is one of the most important inventory management techniques that will help you keep track of your inventory.

By keeping a base level for each product, this will help you determine how many products you have.

This technology will give you a warning sign when your inventory is running low and you will be able to set a base level for your products.

2. First-In-First-Out (FIFO), Last-In-First-Out (LIFO)

The principle of first-in-first-out is an important principle in organization and management, and the process of inventory management requires that the older products be taken out first.

The reason behind this is that old products are more likely to expire compared to new stock. The LIFO method is the other most widely used inventory management technique.

Which sells new products first and old products last. This method helps reduce the sales tax that producers need to pay for the products they sell.

3. Dropshipping

This technology is where products are sold directly from the supplier’s warehouse, and is one of the fastest ways in business models. Anyone can use it by creating and promoting their own website.

4. Just in Time Delivery

One of the most important techniques used in order management and inventory is the JIT method, through which inventory costs are reduced and inventory is acquired as needed.

Also, through JIT technology, the company will be able to deal with inventory that is not used or sold by customers.

5. Prioritize with ABC

The ABC technique is the best technique for effective inventory management for products that are sold in different categories.

Through it, the company will be able to prioritize its inventory by separating the products that require a lot of attention.

The following is how the products are categorized by this method:

  • Products that sell slowly but are of high value.
  • Products that are sold at a moderate pace but of moderate value.
  • Fastest selling but low value products.
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