Inventory Management

What is inventory management?

Inventory generally refers to all products, goods or materials that a company offers for sale and that are in stock. Inventory management is responsible for the logging of this stock from the time of arrival to the time of departure. The right products should be in the right place as soon as they are needed. The aim is to achieve an optimal inventory level and to keep the associated inventory costs and capital commitment as low as possible, while maintaining a high level of customer satisfaction and delivery reliability. For this, it is important to know how much stock is available, when products or goods have to be reordered, what quantity has to be reordered and where products or goods can be stored.

Why is inventory management important?

Inventory management comes into play for all companies that have to store finished goods or semi-finished products. A high volume of inventory means a high amount of capital tied up as well as an increased risk of inventory. However, too little stock can lead to supply bottlenecks. It is therefore important to maintain the balance between too high and too low stock levels. Good inventory management ensures that inventory and costs flow in such a way as to achieve optimum profitability.

The three steps of inventory management

1. Demand planning

Based on collected data and experience, a forecast of the future demand for the goods is made. In this way, it is possible to calculate how high the stock must be at what point in time.

2. Inventory planning

In this step, the optimal production or order quantity and the appropriate production or order time are determined. In this way, products can be manufactured or purchased more efficiently, stock kept as low as possible, but sufficient, and the entire demand can be met.

3. Procurement planning

As a final step, procurement and demand must be matched in such a way that both the company’s inventory targets and financial targets are met. For this purpose, the inventory manager checks how the requirements arising from the demand plan can be met in a targeted manner.

Main tasks of inventory management

Monitoring of stocks

The inventory manager should always have an overview of where inventory is located in the supply chain. This can be ensured with the help of software.

Transmission management

Inventory management ensures that products are always where they are needed and moves them there.

Controlling and anlaysis

Movements in the warehouse and ongoing processes are monitored and analyzed by the inventory manager in order to predict future requirements and to plan and optimize the inventory accordingly.

Dispatch function

The exit of the goods from the warehouse is also the responsibility of an inventory manager. This is about issues such as the automation of dispatch and the reduction of errors, such as delivery delays or incorrect deliveries.

What is an inventory management system?

The beginnings of inventory systems were simple tables that logged and calculated the quantity of goods in the warehouse. With growing demands, inventory systems have become increasingly complex and are now implemented in the form of software. This can be linked internally to accounting systems or ERP systems (Enterprise Resource Planning) and thus be used for efficient inventory control across multiple locations. Inventory management software is usually provided as software-as-a-service.