Why Inventory Management Matters for Your Supply Chain

The inventory management system stays at the heart of effective Supply Chain Management, and it has changed significantly with the rise of technology and business trends.  

In the early days, the conventional approach to inventory management involved manual counting and stock tracking which had been tedious and prone to human error. However, in the contemporary landscape, the imperative for heightened clarity and accountability has become evident as businesses seek to enhance competitiveness. Today, the narrative has evolved with innovative technologies streamlining the inventory management process, contributing to heightened accuracy, minimized waste, and elevated customer satisfaction while reducing repetitive tasks. 

What is Inventory?  

Inventory encompasses the stock of items, parts, and raw materials utilized in production or available for sale by a company. It is categorized in three ways: raw materials, work-in-progress, and finished goods.  

• Raw materials, like wood, metals, plastics, or fabrics, are sourced from suppliers and producers to produce finished goods.  
• Work-in-progress refers to partially completed products incurring production costs like labor and machinery.  
• Finished goods represent the inventory of products ready to fulfill customer demand. When a work-in-progress is completed, it transitions into the finished goods inventory.  

What is Inventory Management?  

Inventory Management is critical for well-deployed supply chain management for any business. The process involves overseeing, tracking, and controlling the flow of goods and materials, monitoring inventory turnover, and optimizing replenishment to ensure products are always available. Good Inventory management would ensure the availability of the right products in the right optimum levels in the right place at the right time. To achieve an effective Inventory management real time visibility about goods is quite important.  This helps us to make the right decisions on when to order, how much to order, and where to store stock.   

Regardless of the business size, Inventory management becomes an essential part of its success. It ensures smooth business operations and happy customers. The three fundamental steps of the process are:  

• Acquiring Inventory: Raw materials or components are purchased and transported to the warehouse.  
• Warehousing Inventory: Inventory is stored until required. Raw materials are transferred to production facilities, transformed into finished goods, and then returned to storage until they are prepared for shipment.  

• Capitalizing on Inventory: The quantity of products available for sale is regulated. Finished goods are retrieved to meet orders, and products are dispatched to customers.  

What are the various Inventory Management Techniques? 

Here are some of the techniques that can help businesses optimize their inventory control and reduce waste. 

• Demand Forecasting: Accurate demand forecasting is crucial to prevent delays and cost overruns. It is the linchpin for maintaining a balance between supply and demand. Inaccuracies in forecasting can adversely impact sales and scheduling, leading to financial losses. 
• Just-in-time (JIT) inventory: JIT inventory is a system that orders inventory only when necessary, reducing costs by eliminating excess stock. 
• Material requirements planning (MRP): MRP uses demand forecasts to plan raw materials for production, preventing stockouts and ensuring optimal inventory levels. 
• Economic order quantity (EOQ):  The EOQ method, prevalent among manufacturers, addresses variable costs such as raw materials, production, and demand fluctuations. It enables cost reduction by bulk purchasing, minimizing the necessity for individual item reorders. 
• ABC Analysis: ABC analysis categorizes products into three groups based on profitability: A for the most valuable, B for midrange, and C for small-ticket items with high turnover. 
• Dropshipping: This model enables the sale of products without inventory management. Suppliers fulfill orders directly, minimizing storage and carrying expenses. 

Why do businesses need effective inventory management? 

Here are some of the challenges an organization finds while managing their inventory effectively.  

• Managing Obsolete Inventory: Retaining excess stock can lead to obsolete stock that is challenging to sell, occupying valuable storage space. Conversely, insufficient stock levels may impede order fulfillment. Striking the right balance is essential for effective inventory management.  

• Addressing Seasonal Fluctuations: Managing inventory becomes challenging for businesses with goods experiencing significant seasonal or market demand variations. Precise demand forecasting and adjusting inventory levels are crucial to prevent stockouts or overstocking. 
• Unreliable Inventory Tracking: Many businesses depend on outdated methods such as spreadsheets, obsolete software, or, in the worst instances, paper-based systems. This reliance introduces human errors and inaccuracies, particularly when monitoring current stock levels and sales across multiple platforms.  
• Navigating Customer Returns: The challenge lies in treating returns as an integral aspect of the customer experience and handling them adeptly, preventing them from evolving into a perpetual source of frustration. It's a responsibility to transform this inventory management challenge into an opportunity for growth and fostering customer loyalty.  
• Supply Chain Complexities: Organizations need help in keeping correct track of local and global supply chains by monitoring supplier performance and optimizing logistics. It happens because of poor inventory planning and a lack of communication between organizations and their suppliers.    
• What are the benefits of an effective Inventory Management system?  

An effective inventory management system can optimize a business's production and fulfillment processes. Here are some of the benefits of implementing an effective inventory management system:  

• Cost Efficiency: Inventory is vital in supply chain management by minimizing inventory costs. Holding excess stocks can inflate prices, while insufficient inventory causes production delays. Striking the right balance is essential for cost optimization.  
• Enhanced Efficiency and Productivity: Effective inventory control improves storage management, ensuring quick and efficient retrieval, packing, and delivery of products.  
• Customer Satisfaction: Maintaining the right inventory levels enables faster order fulfillment, fostering customer trust and increasing the likelihood of repeat business.  
• Data-Informed Decision-Making: Efficient inventory management provides clear insights, facilitating better and faster decision-making aligned with market trends and customer preferences. It allows tracking warehouse inventory, orders, shipments, returns, and potential stock-outs.  
• Increased Revenue and Profit Margins: Accurate inventory forecasting prevents revenue losses due to errors like stock-outs and overstocks. It improves supply chain inventory management, reduces supplier lead time, and costs, and increases profit margins. 

How Partner Portal Helps in Inventory Management  

Partner Portal, a cloud-based vendor management system, equips organizations with everything they need to enhance performance and conserve resources. Partner Portal offers features from real-time inventory management to digital catalog and vendors' performance tracking.   

Digital inventory systems can assist in improving inventory management and speeding up fulfillment. Partner Portal's advanced inventory tracking feature can simplify ordering, storing and using inventory by automating end-to-end production, business management, demand forecasting and accounting.    

Some of the advantages of integrating Partner Portal for inventory management are:  

• Seamless Vendor Onboarding: Implement a user-friendly system enabling vendors to submit and verify compliance information online.  
• Enhanced Communication and Collaboration: Foster faster communication and collaboration between companies and vendors.  
• Centralized Inventory Management: Streamline the management of consolidated inventory from various locations in a centralized system.  
• Real-time Inventory Tracking: Employ real-time inventory tracking to stay updated on goods and material statuses in the supply chain.  
• Performance Monitoring: Improve vendor performance monitoring by tracking key metrics such as on-time delivery, product/service quality, and adherence to contract terms.  

Partner Portal provides vast data that offers significant insights into how supply chain performance can be improved. Users can anticipate anomalies in logistics costs and performance before they occur and understand where automation can deliver significant scale advantages. Organizations with complex supply chains and manufacturing processes can find the right balance between having too much inventory and needing more.