What is inventory management

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Chapter 1 What is inventory management? What is inventory management? Share this page. Table of Contents What is inventory management? Inventory management definition As a part of your supply chain, inventory management includes aspects such as controlling and overseeing purchases — from suppliers as well as customers — maintaining the storage of stock, controlling the amount of product for sale, and order fulfillment.

Discover how QuickBooks Commerce can transform your inventory management system Powerful inventory and order management software. Retail inventory management Retail is the broadest catch-all term to describe business-to-consumer B2C selling. First, online retail eCommerce where the purchase takes place digitally. Second, offline retail where the purchase is physical through a brick-and-mortar storefront or a salesperson. Proper warehouse management is key.

Mis-picks result from incorrect paper pick lists, disorganized shelf labels, or just a messy warehouse in general. Mis-shipments are a direct result of mis-picks at the beginning of the inventory process, and are also a result of a lack in quality control procedures. Out of stocks and overstocks occur when a company uses manual methods to place orders without having a full grasp on the state of their inventory. This is a not a good predictor for inventory forecasting and results in too much stock or too little.

All of these mistakes will not only cost you money, but also cost you in wasted labor spent correcting the mistakes later.

And your customer reviews and loyalty take a negative hit as well. Economic order quantity, or EOQ, is a formula for the ideal order quantity a company needs to purchase for its inventory with a set of variables like total costs of production, demand rate, and other factors. The overall goal of EOQ is to minimize related costs. The formula is used to identify the greatest number of product units to order to minimize buying. The formula also takes the number of units in the delivery of and storing of inventory unit costs.

This helps free up tied cash in inventory for most companies. On the supplier side, minimum order quantity MOQ is the smallest amount of set stock a supplier is willing to sell. For example, inventory items that cost more to produce typically have a smaller MOQ as opposed to cheaper items that are easier and more cost effective to make.

This inventory categorization technique splits subjects into three categories to identify items that have a heavy impact on overall inventory cost. Just-in-time JIT inventory management is a technique that arranges raw material orders from suppliers in direct connection with production schedules.

JIT is a great way to reduce inventory costs. Companies receive inventory on an as-needed basis instead of ordering too much and risking dead stock. Dead stock is inventory that was never sold or used by customers before being removed from sale status. Safety stock inventory management is extra inventory being ordered beyond expected demand. This technique is used to prevent stockouts typically caused by incorrect forecasting or unforeseen changes in customer demand. FIFO is a great way to keep inventory fresh.

LIFO helps prevent inventory from going bad. A reorder point is usually higher than a safety stock number to factor in lead time. Batch tracking is a quality control inventory management technique wherein users can group and monitor a set of stock with similar traits. This method helps to track the expiration of inventory or trace defective items back to their original batch. Consignment inventory is a business deal when a consigner vendor or wholesaler agrees to give a consignee retailer like your favorite consignment store their goods without the consignee paying for the inventory upfront.

The consigner offering the inventory still owns the goods and the consignee pays for them only when they sell. Perpetual inventory management is simply counting inventory as soon as it arrives. When a store makes a sale, instead of picking it from their own inventory, they purchase the item from a third party and have it shipped to the consumer.

The seller never sees our touches the product itself. Lean is a broad set of management practices that can be applied to any business practice. Six Sigma is a brand of teaching that gives companies tools to improve the performance of their business increase profits and decrease the growth of excess inventory. Lean Six Sigma enhances the tools of Six Sigma, but instead focuses more on increasing word standardization and the flow of business.

Demand forecasting should become a familiar inventory management technique to retailers. Demand forecasting is based on historical sales data to formulate an estimate of the expected forecast of customer demand. Cross-docking is an inventory management technique whereby an incoming truck unloads materials directly into outbound trucks to create a JIT shipping process. There is little or no storage in between deliveries. Bulk shipments is a cost efficient method of shipping when you palletize inventory to ship more at once.

MB Klein, a historic retailer in Maryland of model trains, train sets, and railroad accessories, is a mutual client of SkuVault and BigCommerce. Click here to browse popular inventory management solutions we currently integrate with.

Get in touch to discuss your options. Using vendor managed inventory can also benefit your business and avoid some of the mistakes stated above. Every company should be looking for practical, attainable ways to lower their operating costs, and incorporating an inventory control system is one of the best ways to do exactly that.

For the last few years, days inventory outstanding DIO -- that is, the average number of days a company holds onto its physical inventory before turning it into sales -- has been on a steady upswing. This can sometimes directly translate to spoilage and dead stock. Common sense tells us if you continue to invest in your inventory when you have a surplus of unmoved products, you stand to lose money in both the short and long-term.

Fortunately, tracking inventory in real-time keeps surplus and waste as low as possible, while also ensuring the production and storage of said inventory is handled efficiently.

By preventing aging stock, you can avoid gratuitous losses and gain more control of your finished goods. But with an understanding of your inventory levels and an accurate way to keep track of the different types of inventory, you can provide more consistent and proactive customer service to your entire customer base.

When customers reach out to your call centers , they expect to get definitive answers about the availability of the products they want to purchase. And this way, you can prevent customer frustration, or worse -- the total loss of a customer due to poor service or unreliable information.

The beauty of ecommerce inventory management is it keeps you from constantly counting stock, and it ensures you never unexpectedly run out of a product or accidentally order in excess.

It also allows you to track critical inventory KPIs and meet your goals. Economic order quantity EOQ is a term for the ideal quantity a company should purchase to minimize its inventory costs, like shortage or carrying costs. The overall goal of economic order quantity is to decrease spending; its formula is used to identify the greatest number of units needed per order to reduce buying. One of the primary gains of the EOQ model is customized recommendations for your particular company.

At times, EOQ may suggest investing in a larger order to take advantage of discount bulk buying and to cut down on total costs associated with multiple shipments. ABC analysis is a technique that splits products into three categories based on consumption values and their impact on annual inventory cost. For example, Category A includes the most valuable products with the largest contribution to overall profit. With ABC analysis, companies can have better control over their high-value inventory items, experience improvements in availability, and see a reduction in costs or losses.

Just-in-time JIT inventory management allows companies to order raw materials from suppliers in conjunction with production schedules.

Utilizing the JIT technique is a great way to reduce costs, since companies receive new products on an as-needed basis, rather than ordering too much of something and winding up with dead stock.

Safety stock is a technique wherein extra inventory is ordered beyond expected demand, in hopes of preventing stockouts caused by inaccurate forecasting or unforeseen changes. Safety stock can be looked at as an insurance plan, protecting companies against uncertainties in supply, demand, or manufacturing yield. By using a safety stock approach, businesses can maintain an adequate amount of inventory at all times, and daily operations can proceed according to plan.

Buffer stock is an invaluable asset whenever sales are greater than anticipated, or when the supplier is unable to deliver product by the agreed upon date. The reorder point ROP in inventory management is the minimum unit quantity a company should have in stock before they need to place another order. Typically, a reorder point is higher than a safety stock number, as it has to factor in lead time. Placing orders at the reorder point ensures replacement products arrive in good time so no stockouts occur.

Additionally, ROP helps avoid holding costs from placing orders too early, which can also cause an inventory pile up at the warehouse. This is why FIFO is used more often, as it assures the oldest products get out the door before anything else.