Entrepreneurs and independent brands now operate in a commerce environment where they must outcompete multinational corporations.
What successful company wouldn’t go above and beyond to manage its most valuable asset effectively?
Imagine a highly successful hedge fund that accepts subpar money management.
It doesn’t make sense.
The inventory management procedure is crucial to evaluating not just the calibre of your company’s output but also the overall financial stability of your enterprise.
Therefore, every retailer requires an effective inventory management system, regardless of the size or nature of their business.
Inventory goes via numerous channels before reaching the consumer; that is one thing about it that is constant.
So, it’s crucial to comprehend the four basic sorts of frequently utilised inventory and the stages they undergo in order to manage your organisation cost-effectively.
Table of Contents
What is inventory and inventory management?
Everything that a business uses to sell or make items, from finished goods and parts to raw materials, is considered inventory.
And according to the products or services your company offers, inventory might be anything from raw silk to priceless works of art to bananas or nails.
Inventory management is the process through which a company keeps track of and manages the number of products coming into, moving through, and leaving the company.
It includes ensuring that the appropriate stock levels and amounts are available at the appropriate times and locations. Additionally, it can also involve procedures like inventory redundancy detection and warehouse layout optimisation.
Generally, for all of the tasks mentioned above, businesses use a stock and inventory management app. Hence, their work becomes efficient, streamlined, and easy.
Types of inventory management
- Raw materials
Raw materials are substances that are needed to convert your stock into a finished product.
These inventory entities are pieces of component parts that are presently on hand but have not yet been incorporated into either the finished goods or the work-in-process inventories.
Raw materials come in two sorts: direct and indirect.
Direct materials are used in finished products straight, whereas indirect resources are integrated into overhead or manufacturing costs.
However, what one business might view as finished commodities, another may view as raw materials.
- Work-in-process
Work-In-Process (WIP), as the name suggests, is an inventory currently being worked on.
When it comes to expenditures, WIP is made up of raw materials and, sometimes, labour costs that are still “in fabrication” at the conclusion of the accounting period.
WIP inventory can comprise both unfinished products awaiting final inspection or quality control as well as raw materials and components that are in the production process to produce finished goods.
- Finished goods
The finished goods inventory is possibly the most straightforward to understand of all inventory kinds. It is that stock that you have on your website offered for sale. This type includes any item that is prepared to be sold to your clients.
The majority of retailers will either buy full, finished products from a source or commission a third party to produce specific products for them.
As a result, finished items are frequently the sole sort of inventory that needs to be managed in retail inventory management.
- MRO
MRO inventory also cited as maintenance, repair, and operating supplies is all about the little things. It is the inventory that is needed to assemble and market the finished product but is not a part of it.
This inventory may be in storage, at a supplier, or in transit for delivery, depending on the details of your firm.
It can include things like:
- Tools for production and repair
- Uniforms and safety gear
- Cleaning equipment
- Machinery
- Batteries
- Computing devices
- Packing materials
Anything you use to pack and protect goods—either during storage or transportation to customers—is a packaging material.
For internet retailers, this is consequently of special importance.
It could incorporate stuff like:
- Bubble wrap
- Padding
- chip packing
- many different boxes
When managing their inventory, many retailers neglect to consider packing supplies. However, as stocks of these products must be constantly used and maintained, it is crucial to include them in total inventory reporting and accounting.
Why should you employ an inventory management system?
Automation
Automation may offer an inventory management system its greatest advantages. Automation reduces the possibility of human error, saves you countless hours, and guarantees accuracy.
Once a set of rules have been established, this system can carry out repetitive activities with little assistance from a human.
Demand forecasting
Often seasonal or year-round events like a significant marketing push from an influencer will result in order volumes increasing significantly.
However, with an inventory management system, the amount of inventory you have will meet demand because of precise demand forecasting.
Avoid overselling or stockouts
For developing e-commerce companies, overselling is a significant concern.
Stockouts are quite simple to experience when you don’t have a good hold on your inventory because you can easily run out of things without realising it.
An inventory management system controls orders and stock continuously across all of your sales channels, allowing you to plan when to restock.
Improved supply chain
Retailers and online firms can more easily implement a supply chain diversification plan with an inventory management system in place. If one supplier can’t deliver on time, having more suppliers reduces the likelihood of having extended product wait times.
Conclusion
Inventory management is crucial for every business. Plus, it is also essential to know the types of inventory management. Even if inventory management is a tedious and time-consuming task, there is no other way around it.
However, employing an inventory management system can make your stock management duty much easier.
