Inventory is something every business has whether it be regular office supplies to the products being sold and the supplies needed to make them and it all needs managed. Proper management of inventory can save you time and money when done correctly. There also isn't a one size fits all to inventory management. There are many different types of inventory management, the trick is finding the best one for you and your business.
What is it?
Inventory Management is a systematic way of storing and organizing components and finished goods. The goal is to know where the business supplies and products are and how much inventory to order when needed.
Inventory Management is a systematic way of storing and organizing components and finished goods. The goal is to know where the business supplies and products are and how much inventory to order when needed.
Why is it important?
When inventory is managed correctly the rest of the supply chain will move more efficiently. The more efficient a process, the less money it costs a business. It also prevents extended wait times on finished goods or cancelling orders due to lack of material which costs a business monetarily and reputationally.
When inventory is managed correctly the rest of the supply chain will move more efficiently. The more efficient a process, the less money it costs a business. It also prevents extended wait times on finished goods or cancelling orders due to lack of material which costs a business monetarily and reputationally.
Methods of Inventory Management
There are many different ways to management inventory. The following are the few most common ways.
There are many different ways to management inventory. The following are the few most common ways.
Just-in-Time Inventory Management
Just-in-Time (JIT) inventory management is a technique where inventory is ordered on an as needed basis. This prevents over ordering and means there is less stock being held and stored. This also means there is no dead stock. Dead stock is inventory that is never sold and is discarded and written as a loss. An example of this type of inventory management is a furniture store. Typically there isn't any inventory of furniture for the customer to take home same day. Instead, it is ordered, manufactured, and sent to the store for pickup or sent directly to the customer. This saves the furniture store money in storing the finished pieces and prevents an overstock of out of style pieces.
FIFO and LIFO Methods
First In First Out (FIFO) means the inventory bought first is sold first. An example of this is a grocery store. The inventory which was bought first and has the closest expiration date is placed towards the front of the self and sold first while inventory that was most recently received is placed towards the back and sold last.
Last In First Out (LIFO) means the inventory purchased most recently is sold first. Typically the inventory purchased most recently cost more than the inventory purchase a few months prior because of inflation. Today you purchased fabric for $3 dollars where last year the price was $1. Using LIFO means the inventory purchased most recently at a higher price are sold first.
Last In First Out (LIFO) means the inventory purchased most recently is sold first. Typically the inventory purchased most recently cost more than the inventory purchase a few months prior because of inflation. Today you purchased fabric for $3 dollars where last year the price was $1. Using LIFO means the inventory purchased most recently at a higher price are sold first.
Kanban Inventory Management
Kanban is an inventory scheduling system used in lean manufacturing and is designed to keep inventory levels as low as possible. The Kanban system is used to create signals or triggers to reorder and replenish stock in specific quantities. As inventory in a supply closet is used, the quantities are tracked. When it reaches a certain stock level, there will be a signal sent to order more.
Prepared for informational purposes only. Please consult with a legal and/or tax professional for specific guidance.