Inventory Management

Let's look at an example of a just-in-time (JIT) inventory system. With this method, a company receives goods as close as possible to when they are actually needed. So, if a car manufacturer needs to install airbags into a car, it receives airbags as those cars come onto the assembly line instead of having a stock on supply at all times.

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One measurement of good inventory management is inventory turnover. An accountingmeasurement, inventory turnover reflects how often stock is sold in a period. A businessdoes not want more stock than sales. Poor inventory turnover can lead to deadstock, orunsold stock.

Public companies must track inventory as a requirement for compliance with Securities andExchange Commission (SEC) rules and the Sarbanes-Oxley (SOX) Act. Companies must documenttheir management processes to prove compliance.

Inventory is the raw materials, components and finished goods a company sells or uses inproduction. Accounting considers inventory an asset. Accountants use the information aboutstock levels to record the correct valuations on the balance sheet.

There are 12 different types of inventory: raw materials, work-in-progress (WIP), finishedgoods, decoupling inventory, safety stock, packing materials, cycle inventory, serviceinventory, transit, theoretical, excess and maintenance, repair and operations (MRO). Somepeople do not recognize MRO as a type of inventory.

If you produce on demand, the inventory management process starts when a company receives acustomer order and continues until the order ships. Otherwise, the process begins when youforecast your demand and then place POs for the required raw materials or components. Otherparts of the process include analyzing sales trends and organizing the storage of productsin warehouses.

Some inventory management techniques use formulas and analysis to plan stock. Others rely onprocedures. All methods aim to improve accuracy. The techniques a company uses depend on itsneeds and stock.

FIFO and LIFO:

First in, first out (FIFO) means you move theoldest stock first. Last in, first out (LIFO) considers that prices always rise, sothe most recently-purchased inventory is the most expensive and thus sold first.

A cycle counting best practice is to count specific SKUs regularly and integrate it into thedaily tasks of warehouse staff. Companies may determine different standards for differenttypes of inventory, such as performing a cycle count of top-moving SKUs or higher-valueitems. Learn more about the benefits of cycle counting.

Demand planning is an important part of successful inventory management. It is the process ofdetermining how much of each item you anticipate selling, and when. Once demand isdetermined, inventory management follows the flow of goods from the supplier throughproduction and ultimately fulfilling customer orders.

Effective inventory management plays an important role throughout the supply chain. There aremany key performance indicators for measuring inventory management success throughout thedifferent organizations in the business. Understand which calculations return the mostinsight into your business processes is important. To learn more, see inventory managementKPIs.

People sometimes confuse inventory management with related practices. Inventory managementcontrols all stock within a company. Supply chain management manages the process fromsupplier to delivering the product to the customer. Warehouse management is a part ofinventory control and focuses on stock in a specific location.

Inventory management is responsible for ordering and tracking stock as it arrives at thewarehouse. Order management is the process of receiving and tracking customer orders.Software often combines both tasks.

Supply chain management is a process of managing supply relationships outside a company andthe flow of stock into and through a company. Inventory management may focus on trends andorders for the company or a part of the company.

The key to streamlining your warehouse operations is a thoughtfully laid out and meticulouslyorganized facility. When each product has a specific place in the warehouse, it preventsstaff from moving about inefficiently and maximizes labor efficiency. But these processesare only as good as the inventory records that drive them.

Inventory management is a crucial part of how companies manipulate their logistics. Therelationship between inventory management and logistics is interdependent. Logistics needinventory management to perform their activities. Good logistics systems improve warehouseand operational activities.

Manufacturing inventory management is the practice of keeping enough stock on hand soproduction lines can fulfill orders. The process helps managers see stock levels at a glanceand tracks raw materials, parts, work-in-progress and finished goods.

Multi-location inventory management is the process of managing stock across multiplelocations, warehouses, and retail stores or across multiple selling channels. Withmulti-location management, you can watch stock levels in all locations and optimize yourinventory to fulfill orders.

An inventory management system optimizes inventory levels and ensures product availabilityacross multiple channels. It provides a single, real-time view of items, inventory andorders across all locations and selling channels. This enables businesses to carry lessinventory on hand and frees up cash to be used in other parts of the business. An inventorymanagement system helps keep inventory costs low while delivering on customer expectations.

Choosing an inventory management system is a matter of identifying the features your businessneeds. Do you need to track stock movements and location within a warehouse, or planinventory and track trends, or both?

Inventory management is vital in the supply chain because a company must balance customerdemand with storage space and cash limitations. Inventory management provides visibilityinto the supply chain (procurement, production, fulfillment, etc.) so managers cancoordinate lead times for deliveries with production timetables.

Real goods in warehouses tie up working capital until they sell. Making the supply chain moreefficient keeps you from holding too much stock. Improving inventory management processeshelps you prevent storing, picking and shipping errors that reduce sales.

There are several types of inventory management systems that businesses use depending on howthey operate. Three examples are manual inventory, periodic inventory and perpetualinventory. Manual methods are the least sophisticated and least accurate, and perpetualsystems are the most sophisticated and most accurate.

Periodic Inventory System: Periodic inventorysystems include manual and periodic counts. Periodic counts record itemdetails as items move in and out of stock. Barcodes simplify stocktaking. A databasecontains the records of stock levels and locations.

Perpetual Inventory System: Perpetual inventorysystems provide real-time stock data, as they rely on active radio frequencyidentification (RFID) tags that are always on and sending updates on item movements.Passive RFID tags, meanwhile, use a scanner to send stock information to thedatabase.

Enterprise resource planning (ERP) is helpful for inventory management because it tracks andprovides insights into supply chain operation, accounting and purchasing, consolidating theinformation and making it visible in one place.

Poor inventory management is an imbalance between keeping too much and too little stock. Thedefinition of a perfect balance can change as demand changes: Sales change when trends orseasons change. Poor stock management increases costs and thereby reduces profits.

Decision-makers know they need an inventory management system that can grow with them. Withautomated replenishment and lot tracing and tracking in multiple locations, NetSuiteprovides cloud-based inventory management solutions that are the perfect fit for businessesof any size. NetSuite offers a suite of native inventory management and control features,including multiple location planning, warehouse and fulfillment management, automated stockreplenishment, lot and serial tracking and cycle counting. Learn more about how you can use NetSuite to manageinventory automatically, reduce handling costs and increase cash flow.

Inventory management, a critical element of the supply chain, is the tracking of inventory from manufacturers to warehouses and from these facilities to a point of sale. The goal of inventory management is to have the right products in the right place at the right time.

Periodic inventory management

The periodic inventory system is a method of inventory valuation for financial reporting purposes in which a physical count of the inventory is performed at specific intervals. This accounting method takes inventory at the beginning of a period, adds new inventory purchases during the period and deducts ending inventory to derive the cost of goods sold (COGS).

Barcode inventory management

Businesses use barcode inventory management systems to assign a number to each product they sell. They can associate several data points to the number, including the supplier, product dimensions, weight, and even variable data, such as how many are in stock.

RFID inventory management

RFID or radio frequency identification is a system that wirelessly transmits the identity of a product in the form of a unique serial number to track items and provide detailed product information. The warehouse management system based on RFID can improve efficiency, increase inventory visibility and ensure the rapid self-recording of receiving and delivery. ff782bc1db