What Is the Role of Inventory Management in Supply Chain?

What is inventory management, and why is it so important?

Inventory management refers to the process of ordering, storing and using the company’s goods or materials.

Successfully managing inventory enables companies to meet their consumers’ demand levels with appropriate supply. Ineffective management can lead to excess inventory, leading to the risk of damage, damage, or demand shifts, leading to stock accumulation.

Supply-Chain Inventory Management丨ChinaDivision丨G2-Learning-Hub
Supply-Chain Inventory Management丨ChinaDivision丨G2-Learning-Hub

If the stock is not sold before these events, it is usually sold at the clearance price or destroyed.

 According to a survey by the Association for Supply Chain Management (ASCM), nearly 60% of respondents indicated that inventory management is one of the top technical skills in their field.

This is an essential part of keeping the supply chain running smoothly. Effective inventory management requires a reliable technology platform and communication between all relevant parties.

Without inventory management, companies will suffer higher levels of waste and additional storage costs. Without accurate and up-to-date information, it is impossible to communicate with customers about product availability and estimated delivery dates.

How to improve inventory management in the supply chain?

 Effective supply chain management starts with technology. Eliminating traditional human errors can save time and reduce the risk of errors.

Digital operation management makes it easier to share any information recorded in the entire supply chain. If your company has implemented a Transportation Management System (TMS), then you have already optimized the whole supply chain!

 

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How-to-improve-inventory-management-in-the-supply-chain丨ChinaDivision丨STORIS

Transportation management and warehouse management are two fundamental parts of a successful supply chain.

The Transportation Management System (TMS) handles the movement of products throughout the supply chain and provides the necessary communication platform for carriers, shippers and manufacturers.

The stock management platform focuses on the quantity and type of products in warehouses or other storage facilities. These technologies form the basis for the company to deliver its products to customers as efficiently as possible.

For example, when a company uses TMS to respond quickly to a customer’s order, it will soon move out of the warehouse instead of occupying inventory space. 

The integration of inventory management and TMS can make it easier to track deteriorated or defective inventory. With the help of TMS, warehouse managers can easily track the movement route of products after they leave the warehouse by tracing SKUs.

When an item recalled, the warehouse management team will have all the relevant information needed to find and isolate the defective product. Real-time inventory information will help bridge the gap between inventory management and transportation management.

What Are the Objectives of Inventory Control?

Inventory control is a method of tracking the flow of inventory. It starts with the purchase and warehousing of the goods until it reaches the manufacturing unit or market. This process can be performed manually or using an automated system.

When the goods arrive at the warehouse, inventory management can ensure that these items (such as inventory, raw materials, components, tools, etc.) are effectively received, counted, classified, arranged, stored and maintained.

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Objectives-of-Inventory-Control丨ChinaDivision

The types of inventory control management systems

When installing an inventory control management system, companies generally need to consider several aspects, such as cost, budget, availability, and accessibility. Inventory management systems can usually divide into the following types:

An inventory management system that uses barcode technology is more accurate and efficient than an inventory management system that uses manual processes.

Barcode inventory management

The inventory management system using barcode technology will be more accurate and efficient. The bar code system automatically updates the inventory level when the staff scans it with a bar code scanner or mobile device. 

The benefits of using barcodes in the inventory management process include:

  • Accurately record all inventory transactions.
  • Eliminate time-consuming data errors that often occur in manual or paper systems.
  • Eliminate manual data entry errors.
  • Easy and convenient scanning speed.
  • Automatically update existing inventory.
  • Record transaction history and quickly determine the minimum level and reorder quantity.
  • Simplify documentation and reports.

Periodic inventory management

Periodic inventory management requires manual tracking of inventory, which is more suitable for small businesses. It does not track inventory every day, but it allows companies to understand inventory level within a specific period. 

Companies will choose to use LIFO or FIFO inventory accounting methods or other methods to calculate the ending inventory value.

Perpetual inventory management

Perpetual inventory management, an accounting method of inventory management, is also called continuous inventory management. 

It links bar codes and radio frequency identification with the accounting inventory system, received inventory, point-of-sale system, and production system to track the path of inventory movement in real-time.

The objectives of inventory control are as follows:

  1. Ensure the continuous supply of materials and inventory so as not to affect production when customers demand.
  2. To avoid overstock or understock.
  3. To ensure sufficient materials for production.
  4. To minimize the capital required for operations and sales activities.
  5. To optimize the various costs of the warehouse, such as handling costs, storage costs, etc.
  6. To reduce losses due to deterioration, theft, waste and damage.
  7. To provide data for short-term or long-term planning under inventory control.
  8. To maintain system inventory records.
  9. Ensure sufficient cash flow to improve operational efficiency.

What’s Safety Stock? How Does It Affect Inventory Management?

What Is Safety Stock and Why Is It So Important?

Safety stock, also called buffer stock, is the stock you order additionally. Almost all companies will set up safety stocks to cope with emergencies. This kind of inventory helps reduce the risk of out-of-stock product sales, loss of sales, or the possibility of customer dissatisfaction.

The main purpose of safety stock is to ensure that there is enough stock for sale. Why is it necessary? Because in most industries, companies cannot determine 100% of the sales volume of a product in a given time.

Safety-Stock丨ChinaDivision
Safety-Stock丨ChinaDivision

Seasonal fluctuations in demand for products may require companies to hold safety stocks at certain times throughout the business cycle. Enterprises need to predict the supply speed, delivery frequency, and delivery time based on the supplier’s distance.

Intensified competition in online stores has caused businesses to pay more attention to changes in product demand. Because of the shortage of goods, your failure to deliver the goods as promised will drive customers to turn their attention to other stores. Nowadays, customers hate waiting. When they cancel an order, you will face the weakening of customer trust and competitors’ blow.

Although a certain degree of safety is needed, it must be emphasized that safety stocks come at a price. The greater the amount of safety stock held, the higher the cost of the company. These costs include warehouse rent, warehouse staff wages, security costs, and the cost of expired or obsolete inventory.

How Does Safety Stock Affect Inventory Management?

A strategic supply chain management system is vital to the success of product marketing and operations. This is related to product inventory management. Correct management measures are conducive to improving customer satisfaction, reducing operating costs, and bringing a stable cash flow to your business.

Inventory management is a reliable long-term investment. Effective safety inventory management can ensure your supply chain’s normal operation and maintain your company’s reputation without disappointing your customers.

How to Improve Inventory Tracking?Simple Guidance for You in Inventory Management

With the rapid development of third-party logistics, 3PL‘s advanced inventory management system can save you time and money.

However, for companies with relatively small business volume, in-house management is still required. Choosing the right inventory tracking method can help improve inventory accuracy.

What Are the Types of Inventory?

Before you can improve warehouse management, you need to understand the inventory types accurately. The following are the different types of inventory:

How-to-Improve-Inventory-Tracking?丨Lynda.com丨ChinaDivision
How-to-Improve-Inventory-Tracking?丨Lynda.com丨ChinaDivision
  1. Raw Materials, materials used to manufacture products
  2. Work-in-Progress, unfinished product being produced
  3. Finished Goods, finished goods stored in the warehouse, waiting to be sold or shipped
  4. Overhaul/MRO, maintenance, repair, and operation supplies, items used to support and maintain the production process and its infrastructure. These items are usually consumed due to the production process’s needs but are not directly part of the finished product. MRO inventory includes lubricants, cleaning supplies, gloves, packaging materials, and other supplies. It also consists of some office supplies, such as staples, pencils, copy paper, etc.
  5. Transit Inventory, the items have been loaded and are in transit.
  6. Anticipation Inventory, to meet the expected surge in sales inventory
  7. Decoupling Inventory, supplies, or products reserved in anticipation of stagnation in some production links
  8. Cycle Inventory, products shipped from a manufacturer or supplier to a company, and then sold to customers immediately
  9. Theoretical Inventory, the inventory rate in and outreaches a balanced ideal state, and inventory products can pass through the manufacturing system’s minimum stock without waiting. But in reality, the warehouse will always have some inventory (such as MRO inventory, decoupling inventory, etc.)

What inventory tracking method is the optimal solution?

Manual tracking

You must complete the inventory count for the outbound and inbound warehouse inventory in the manual tracking system. Besides, any updates to inventory records require manual operations. You can manually copy the item number and any other relevant details, but this inventory tracking method can be time-consuming and has a higher error rate. But one advantage is that you don’t have to pay for barcode scanners and other expensive equipment.

Barcode and QR code tracking

Bar codes or QR codes are commonly used in inventory tracking. The inventory system automatically extracts detailed information by scanning the product barcode or QR. The administrator can quickly and easily change the information in the system. This inventory tracking method can achieve efficient inventory management, so 3PL service providers usually recommend this method.

RFID tracking

As with barcode and QR code tracking, you can use RFID tracking to scan products and automatically extract their detailed information. The main difference between RFID and other scannable codes is the technology behind them. RFID tags scan more comprehensively, so they are very useful for inventory systems that move many products. However, only a few inventory management software supports RFID tracking because it requires specialized (expensive) tags and scanning equipment.