Inventory Management: Benefits, Techniques and Challenges

Reading time6 minutes
Jaqueline Corradi
Jaqueline Corradi
Content Manager

Developing good inventory management is essential for businesses of any size. It includes keeping track of the stock quantity, organizing warehouse space, analyzing when it's necessary to make orders from suppliers, and much more.  

What Is Inventory Management?

Inventory management consists of organization processes to keep track of a business inventory in different moments, like manufacturing, storing, ordering, and selling. It incorporates several processes:

  • Count and update the number of products in stock each time a sale is made
  • Identify when and how much raw materials you need to buy to produce each one of the products you sell
  • Manage warehouse space
  • Strategically analyze the stock to predict trends

Good inventory management is fundamental to avoid problems such as selling out-of-stock items, ordering more items than necessary from suppliers, and losing money. Businesses that sell products in multichannels need to create a system to keep all of the sales channels in sync with the inventory. 

Every time a sale is made online or in a physical store, for example, the stock quantity must be updated. Nowadays, you can find software that allows you to automatize many inventory management processes, reducing risk and helping to improve productivity

Inventory Management Benefits

Enhance Operational Efficiency

An organized inventory can improve efficiency in multiple ways. It's extremely necessary to avoid highly demanded products getting out of stock, and also the opposite way, to prevent you from buying too many products that may increase storage costs, get damaged with time, or even be robbed.  

It enhances operational efficiency at your company storehouse as you can create a system that minimizes the efforts to keep the stock organized. Sellers won't suffer by offering a product that isn't available, but they couldn't know that because the stock information was outdated.  

Improve Stock Visibility

Real-time inventory management facilitates seeing product availability to avoid undesirable situations such as selling out-of-stock items. With an updated inventory, companies that sell in multiple channels, including online ones, can guarantee that customers will receive their purchases within the estimated delivery time. 

Prevent Overspending on Warehouse Storage

An effective inventory management system allows you to keep track of the quantity of each product type in the stock, therefore you can see when you need to replenish products. If your company manufactures them, you can analyze with more accuracy when to order supplies and the time it takes to refill the stock. 

This way you avoid overspending by buying more products than necessary and having to afford the costs of storing them. As you eliminate overstocking, and stockouts, you also help to improve profit margin and reduce costs. 

By Analyzing an inventory updated in real-time, you can analyze product performance over time. It's possible to identify the flagship products from your company, the ones that have been increasing in popularity, and the items that get stuck in the store. 

With this, you can predict trends for the next months and make data-driven decisions on what products you should invest in. Some inventory management software generates performance reports automatically, saving you time. 

Increase Customer Satisfaction

When an inventory is managed efficiently, customers won't be frustrated with late deliveries, wrong orders, or canceled items. This adds credibility to your brand and encourages clients to come back. 

7 Inventory Management Techniques

1. Just In Time (JIT) Inventory

This type of inventory management aligns the arrival time of raw materials with production cycles. The goal is to guarantee that the materials will arrive as production is about to begin, not sooner. 

This way there will be enough stock to produce what is necessary, at the right time, ensuring high-volume production, minimal inventory, and less waste.

2. Just In Case (JIC) Stock Control

Different from the JIT method, in Just in Case (JIC) stock control the company orders a large volume of products to avoid having them go out of stock. This is a common strategy when the company faces difficulties predicting customer demands. However, the disadvantages are the higher costs it implies and the risks of not selling the whole inventory.

3. ABC Inventory Management

The ABC inventory management approach divides the inventory into 3 categories, A includes the most important items, and C the least important ones.  It aims to help make strategic decisions when choosing where to invest more. For example, best-seller items are put in the category "A", indicating they should have priority to be restocked. 

4. Economic Order Quantity (EOQ)

Developed by Ford W Harris in 1913, the purpose of the EOQ model is to define how many items a company should purchase to meet customer demand and reduce the costs of each order.

5. Days of Sales Inventory (DSI)

The Days of Sales Inventory (DSI) is a method used to calculate the average time it takes for a company to sell its whole inventory. It's a metric used to analyze sales performance and how to improve the inventory. If the DSI is too high it's necessary to think of marketing strategies to sell faster,

6. Barcode Inventory Management

Barcode

The barcode inventory management system consists of using barcodes, as the name suggests, to track the products. This way when someone scans the barcode, it's possible to know the quantity available and location of this same item in the warehouse. 

7. RFID Inventory Management

Device scanning RFID

RFID means Radio Frequency Identification, it's used to identify and track objects. A microchip, which can hold a large amount of data, is tagged in the inventory item, and you scan it to read the information. One of the main differences from the barcode system is that the information can be read from a much larger distance. 

Inventory Management Challenges

Regardless of the systems you choose to implement, it's necessary to make sure you will have a real-time update inventory. You should eliminate outdated processes, which are only in the way of getting better results.

Poor Outdated Processes

Outdated processes can stop you from improving productivity and reducing costs because they affect the whole supply chain. Therefore, one of the first things to do is analyze what are the weak and strong points in the current strategies used to manage the inventory. 

Inaccurate Stock Details

Another great problem that can lead to losing sales and credibility with clients is having inaccurate stock details that enable errors such as selling out-of-stock items or delaying deliveries. Make sure your inventory system is updated in real time and is in sync with all the sales channels used. 

How to Manage Warehouse Space

Inventory management also includes knowing how to organize the warehouse space so all the items can be easily located. Besides, it's important to consider the number of sales, and the warehouse size when making orders to refill products, so everything fits well. 

Difficult to locate Specific Products

Woman in an warehouse making notations.

Barcode and RFID are solutions commonly adopted to face the challenge of locating products in warehouses. Both of them enable you to keep track of the products and identify where items from the same category are stored.

Keep Investing in Techniques to Improve Inventory Management

Each company has its specific needs, therefore it's fundamental to think of personalized solutions when it comes to inventory management. Research the studies in this area, get to know new technologies that have been implemented to automatize inventory control, and choose the solutions that suit your company better.

Like what you've read?
Sign up and try JivoChat for yourself!
It's free and only takes a couple of minutes to download.