What Is Inventory Management?

Inventory management refers to the process of ordering, storing, and using a

company's inventory. These include the management of raw materials,
components, and finished products, as well as warehousing and processing
such items.

For companies with complex supply chains and manufacturing processes,

balancing the risks of inventory gluts and shortages is especially difficult. To
achieve these balances, firms have developed two major methods for
inventory management: just-in-time and materials requirement planning: just-
in-time (JIT) and materials requirement planning (MRP).

MEANING

When we ask “what is inventory management?” the answer is pretty straight

forward. Inventory management (or stock management) is literally the process
of managing a business’ inventory and stock. It is a part of supply chain
management. To further define inventory management process we can note
that it includes aspects like storage of inventories, overseeing the orders for
stock inventory, and controlling the number of items in stock.

As you see, the inventory management definition is not complicated. The real
question is how do you, as a retailer, unitize inventory management, meaning
what techniques do you focus on to achieve the best results? Here are a few
useful how-to’s to use in your inventory management.

INVENTORY MANAGEMENT TECHNIQUES

Set par levels

First-In First-Out (FIFO)

Contingency planning.

Regular auditing.

Prioritize with ABC.

SET PAR LEVELS

Make inventory management easier by setting “par levels” for each of your
products. Par levels are the minimum amount of product that must be on hand
at all times. When your inventory stock dips below the predetermined levels,
you know it’s time to order more.

Ideally, you’ll typically order the minimum quantity that will get you back
above par. Par levels vary by product and are based on how quickly the item
sells and how long it takes to get back in stock. Although setting par levels
requires some research and decision-making up front, having them set will
systemize the process of ordering. Not only will it make it easier for you to
make decisions quickly, it will allow your staff to make decisions on your
behalf.
Remember that conditions change over time. Check on par levels a few times
throughout the year to confirm they still make sense. If something changes in
the meantime, don’t be afraid to adjust your par levels up or down.

FIRST-IN FIRST-OUT (FIFO)

FIFO is a method of asset management and valuation. It operates under the

assumption that the assets that are produced or acquired by a company first
are sold, used, or disposed of first. Therefore FIFO Inventory Valuation means,
First In (first items to be produced) First Out (First items to be sold).

For example, a grocery store purchases milk at regular intervals to stock its
shelves.

Contingency planning

Definition

contingency plan should include any event that might disrupt operations. Here
are some specific areas to include in the plan: Natural disasters, such as
hurricanes, fires, and earthquakes. Crises, such as threatening employees or
customers, on-the-job injuries, and worksite accidents.

Activity undertaken to ensure that proper and immediate follow-up steps will
be taken by a management and employees in an emergency. Its major
objectives are to ensure.

(1) containment of damage or injury to, or loss of, personnel and property,
and

(2) continuity of the key operations of the organization.

REGULAR PLANNING

An audit is an objective examination and evaluation of the financial statements

of an organization to make sure that the records are a fair and accurate
representation of the transactions they claim to represent. ... The IRS can
perform audits to verify the accuracy of a taxpayer's returns or other
transactions.

EXAMPLE
Companies, government agencies and nonprofit organizations use auditing
practices to manage compliance with internal controls. For example, an
auditor looks for inconsistencies in financial records. Audit reports help an
organization demonstrate accountability to internal and external stakeholders.
An audit might include collecting a sample from a pool of data using a specific
protocol and analyzing the findings to generalize about the data pool's
characteristics.

PRIORITIZE WITH ABC

Covey acknowledges that at times you need to re-prioritize the list as
circumstances change. The classic system for prioritizing a list is
the ABC system. This system assigns each of your tasks on your list a letter to
signify its importance or urgency. “A” is for the most important or the most
urgent.

In an ABC list,

“A” tasks are ones that are most urgent and important,

“B” tasks are important but not as urgent, and

“C” tasks are neither important nor urgent.