Inventory Management: Meaning, Strategies, Process, Types, Benefits & Challenges

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Embarking on a thorough exploration of inventory management, we delve into its complexities—examining its definition, breaking down strategic approaches, and navigating various dimensions. The crucial question at the centre of our discussion is: "What is inventory?" This question guides us through the intricacies of supply chains and operational frameworks. Let’s explore warehouse logistics, digital optimisations, and purposeful strategies used for effective inventory control. Join us in understanding the profound importance and strategies involved in adept inventory management.

What is Inventory Management?

Inventory management refers to efficiently handling goods throughout a company's journey, which includes ordering, storing, making, selling, and restocking. There are two main levels of inventory management: aggregate inventory management, which oversees the overall inventory, and stocking location and item-level inventory management, which focuses on specific items and their locations.

Effective inventory management is crucial for businesses as it helps them maintain the right amount of products, control costs, and keep a smooth supply chain. Planning thoughtfully is vital to meet customer needs while avoiding excess or insufficient stock. This process plays a vital role in enhancing overall operational efficiency for businesses.

Why is Inventory Management Important?

Inventory management holds paramount significance for businesses.

Competitiveness: Diverse and ample inventory ensures businesses meet customer demands, enhancing competitiveness in local and global markets.
Reputation: Consistent product availability builds trust, fostering a positive company reputation and encouraging customer loyalty.
Loyalty: Meeting expectations consistently fosters loyalty, prompting customers to actively seek the brand for new products.
Customer Service: Sufficient inventory streamlines return processes, enabling efficient customer service.
Cost Savings: Efficient inventory management allows for competitive pricing, reducing costs and attracting more customers.
Productivity: An organised inventory database saves employee time, improving overall productivity.
Fulfilment: Adequate in-stock inventory speeds up order processing, contributing to customer satisfaction and loyalty.
Product Awareness: Effective inventory management helps businesses adjust product offerings to meet customer preferences.
Forecasting: Accurate inventory data aids in forecasting future product requirements for seasonal upticks and events.
Organisation: Universal inventory accounting in multiple locations improves efficiency, reduces costs, and enhances customer relations.

The Inventory Management Process

A sound inventory management system saves lots of money and effort. Though its process is complex, particularly goods are delivered to the warehouses and must be put up on stock areas or shelves. Inventory management takes up a great variety of data to keep track of those goods. Organising inventory management is a very crucial part of controlling costs and may also have a powerful impact on managing supply chains. For large organisations, it could be a time-consuming process. On the contrary, it could be easy for small businesses to shift their materials to that area directly.

Benefits of Inventory Management

Inventory is termed as the biggest asset for any company. Going for this may help prevent the company's stock from any wastage. The benefits of Inventory Management are as follows:

A well-maintained warehouse: Provides a warehouse that's fully organised. Here, the products to be sold are too often based on demand and are ascertained easily.
Higher productivity: A better solution saves great time that could be spent on many different activities.
Helps in avoiding stockouts: Proper planning and great management prevent a businessman from facing the issue of stockouts many times.
Overselling risk gets reduced: Proper management lets you track how much stock is available so you don't oversell.

Inventory Management vs Inventory Control

Both of them work hand in hand in every organisation. There are some distinctive points between the two of them.

Particulars	Inventory Control	Inventory Management
Meaning	This method is the one in which the already existing inventory is managed.	This system emphasises the process of forecasting.
Scope	Its scope is quite limited.	Here the scope is wider as it involves proper planning and forecasting.
Purpose	Its basic purpose is to ascertain the level of goods being stocked.	Inventory management is about managing product demand and maintaining good bonds with vendors.

Inventory Management Challenges

There are many challenges in the process of inventory management. At times company goals aren't achieved due to unorganised inventory. Below are a few of the challenges faced:

Inaccurate data and inconsistent tracking: You must keep track of the amount that's exactly available. Every sort of business gets the benefit if it has proper management. It has become far easier these days due to the accounting systems.
Changing demand: The demand of buyers is drastically changing these days. It is essential to keep a strategy and track how much is required in the market and all the trends that are going on.
Supply chain complexity: Supply chains shift every day, burdening your planning and management operations.

How is Inventory Management Different from Other Processes?

Inventory management implies having control of different types of stocks within a company. Many other things could discriminate against it in numerous ways. For example, we could consider supply chain management, which manages the process from supplier to delivery of the products to their customers. It could be distinguished from Inventory optimisation which is the process in which inventory is utilised most properly. Similarly, in the case of warehouse management, they emphasised stock in a specified location.

What is Multi-Location Inventory Management?

Multi-location inventory management includes those companies which manage altered facilities. A technique that tracks and helps in managing many other locations. It also helps reduce costs by improving stock returns and providing better efficiency. Multi-location systems can be put to use by a variety of software. They comprise software that monitors all movements made in all the varied facilities.

How do you choose an inventory management system?

One must evaluate a few points to pick an ideal inventory management system.

Cost and Budget

These systems vary in a wide range. It could be found quite difficult to work with software vendors. This clearness eases you from clinging to your budget.

Understand your challenges

One must keep a record of struggles and questions that arise in one's mind to plan how to cater to the company's demands.

Understanding your Inventory needs

The foremost step is to create a tracking network of your products. This would help in deciding the inventory level to carry at a particular moment.

FAQs About Inventory Management

What are Inventory Management policies?

An inventory management policy is a set of rules that provides a framework for an organisation. Perfect way to ascertain the best method by which a product could flow.

What are the objectives of Inventory Management?

Their main objective is to keep the stock in a way that it stays well-stocked and remains understocked.

How does Inventory Management affect working capital?

If one keeps a lot of inventory with them, it will become a financial burden to them. And may lead to depleting your working capital as well.

What are the types of Inventory Management Systems?

Asset inventory management, Barcode tracking, Perpetual inventory system, A B C analysis.

This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.