Inventory Management System: Definition, Importance and Benefits
The inventory management system is a vital component of the supply chain process, which entails close tracking of inventories. Inventory is a stock of goods that a company maintains for selling purposes to earn profits.
Inventory tracking starts from manufacturing facilities to warehouses and continues to retail or wholesale stores. Companies manage their inventories using modern and sophisticated tools and technologies to place the right product at the right place and at the right time.
Read on to know the importance and benefits of managing the inventory.
How Does Inventory Management System Works?
The main aim of this system is to streamline a product's manufacture, supply and distribution segment. All the products under a system of inventory management come attached with bar codes or asset tags. These contain all information about that product in one place.
Every employee who is a part of this system has hardware devices like a barcode reader or a smartphone having barcode scanners. The inventory management software integrates all relevant departments in this process under one platform.
In an inventory management system, there is a central repository of a database containing all past and present information about the inventory. It helps inventory management experts to analyse past performance and forecast future trends.
One of the most important aspects of inventory management is inventory visibility. It is one of the best inventory management practices, as large multinational organisations have multi-order fulfilment channels. This ensures spreading out the inventory at different stages and different locations.
Inventory management systems provide managers with an accurate idea about the stock, which allows them to fulfil customer orders quickly, remove inefficiencies and reduce the turnaround time.
What Is the Importance of an Inventory Management System?
Many experts consider inventories as one of the most important and valuable assets for a company. However, these present several risks and challenges to companies as well. Inventories suffer from loss or theft, damage due to natural disasters, or loss due to changes in customer preferences.
An inventory management system allows companies to track and streamline their supply chain process. Organisations can determine an accurate price for their products by analysing the time and cost involved. This system helps companies manage changes occurring in demand as well as customer preferences.
This management technique helps managers ensure that one place does not have an excess inventory whereas another place suffers from an inventory deficit. They can strike a balance and ensure optimum utilisation of inventory.
What Are the Benefits of Having an Inventory Management System?
Some benefits of inventory management system are as follows:
- This system helps companies with improved cash flows.
- Management of inventory systems allows companies to remove dead or redundant stock of goods. With this, they can free up space for new goods.
- Another crucial benefit of this system is a reduction in overhead logistical costs. It improves the profitability of the company.
- Inventory management system also allows better coordination between vendors, suppliers, distributors and retail sellers.
- As an inventory management system is heavily reliant on technology, it ensures transparency in functioning.
- Moreover, companies can enhance their capabilities and reduce the risk of inventory losses and damage by using this system.
How to Choose the Right Inventory Management System?
Here are some pointers that you should keep in mind while choosing an inventory management system:
- Integration: Companies should prepare a comprehensive list of functions and components of their business. After doing so they must work on integrating their inventory management system with these components. They should consider a management system which seamlessly integrates with their business components.
- Ease of use: Another factor that companies can consider while going for an inventory system is convenience and ease of use that it offers. As low skilled workers would regularly use this system it is important for company to choose a system whose user interface is easier for employees.
- Technical support: Any software that business incorporates in its working is likely to face certain teething troubles at the start. Therefore, firms must go for such a system that offers prompt support services. They should check ways of connecting with the developers and also quality of their support from verified sources.
As seen from the above discussion, an inventory management system is vital to a business enterprise. There are several inventory systems that one can choose from. But companies must conduct a thorough in-house survey to consider which system is best suited for them.