Learn why Inventory Management is important in Supply Chain Operations

Andy Lim
June 15, 2022

The MPS in a make-to-order environment is a schedule of the actual customer orders. The MPS in operations management must balance the demand identified by sales and marketing with the availability of resources. To tide over these uncertainties, there are statistical and mathematical techniques which help managers to plan the levels of safety or buffer stock. When searching for a software solution, you must ensure that these must-have features and functions of inventory management are available in that tool. It helps to free up any tied cash in inventory for most entities and reduces the direct costs.

functions of inventory

Management of inventory or Inventory management is all about handling functions related to the tracking and management of material. Inventory management is very important in the case of Production Oriented Enterprises. Before we https://1investing.in/ understand how exactly inventory management has an impact on your business, it is essential that we walk through the levels that make up an organization. An organization is made of three levels — structure, process, and system.

Q: Which of the following is a function of inventory?

This information is tracked by retailer and is also shared with upstream vendors. Fibre2fashion.com does not endorse or recommend any article on this site or any product, service or information found within said articles. The views and opinions of the authors who have submitted articles to Fibre2fashion.com belong to them alone and do not reflect the views of Fibre2fashion.com. Forecast Data Report – Summary of historical demand activity, which indicates the margin of error between forecast and actual and provides a statistical summary. In previous articles, we introducedBills of Materials and Material Requirements Planning , two legs of the inventory planning tripod. A line fill rate is the percentage of order lines that could be filled completely.

Logistics companies are responsible for managing the surplus goods within the warehouses. It ensures that the goods are safely transported throughout the entire process starting from manufacturing to distribution. Handling goods or materials can be a daunting task, therefore the organizations should streamline the work activities and incorporate the relevant equipment which is manual, semi-automated, and automated equipment. Moving stored materials or products is an important function of logistics which can lower the manufacturing cost and elevate the customer experience.

Inventory management examples—industry use cases

When you need to get access to the software from the comfort of your home or when you are travelling, you should be able to do so without any issue. TallyPrime enables you to access all inventory-related information from your device as long as you are connected to the Internet. Whether you are using your smartphone or your tablet, you can get access to the business reports on a web browser. Constant monitoring of stock changes and analyzing the inventory data helps to maintain a strong stock pipeline and disbursement across all the sales chain.

functions of inventory

Also, this information helps them stock up scarcely available raw materials to produce finished goods without delays. Logistics refers to the process of managing and monitoring the complex supply chain operations about how the resources are acquired, stored, and transported to the desired destination. There are various functions of logistics management that are extremely essential for the seamless movement of goods or products.

Modern, cloud-based inventory management systems provide comprehensive materials management capabilities that effectively manage the flow of goods across your company and its global supply network. In conjunction with warehouse management systems, they provide accurate and timely visibility into inventory levels, restocking plans and order fill rates, all effect customer satisfaction. Inventory turnaround is that notion that speaks to the amount of time raw materials and parts spend in the plant after purchase and before they are put to use.

When you receive an order from your customer, order management takes care of preparing a sales order and invoice. After the order confirmation, the warehouse management process will identify the location of the stock and send it to your store. Then, just like the wheels, the packaging and shipment process sets the item in motion. functions of inventory It ensures that the item gets packed, dispatched, and delivered to the customer, on time and safely. Inventory management enables each component in this process to perform its step and contribute to reaching the desired end. Effective inventory management solutions are critical as the demand-supply chains need to be balanced.

Inventory management software

The sales and operations planning processes help to attain effective inventory management. The primary aim of sales and operations planning is to bring the demand management functions together with the operations functions. The significance of inventory management in the demand-supply chain provides updated and direct sales forecasting information, which assists the sales and marketing group in planning for future inventory needs. When talking about inventory, it is vital that one of the functions of inventory management software is to be flexible to suit your business requirements.

  • RFID tags can be active, continually broadcasting a signal, or passive, requiring physical readers to track items.
  • Along with the BOM, MPS can determine what components are needed from manufacturing and what components need to be purchased.
  • Inmake-to-stockenvironments, a limited number of items are assembled from a larger number of components, for example, video recorders or computers.
  • Managing restaurant inventory is unique in that it must provide real-time ingredients monitoring because many are fresh, have short shelf lives and carefully tracked through to consumption.

Before a master production schedule can be produced, you need to create a demand plan. This uses historical data from sales to forecast customer orders over the coming months or years. The demand plan must also include a set amount of safety stock – in case an unexpectedly large order is generated – to protect against stock outs. To help achieve the demand and supply balance, businesses implement sales and operations planning (S&OP) processes. The fundamental purpose of S&OP is to bring the demand management functions of the company together with the operations functions of the company. Assemble-to-orderenvironments make use of raw materials to form basic components and complete sub assemblies.

A company moves some of its jobs to another country and employing workers in other countries to save on labor costs best describes the practice of outsourcing. Expansion is a phase in which, when the economy moves from a trough to a peak. It is a period when the level of business activity surges and gross domestic product expands until it reaches a peak.

What are the six functions of inventory?

It involves categorising inventory into three buckets called A, B and C depending upon the importance of the inventory to its profit. A category consists of expensive items, and hence a small inventory is held. While inventory management is common across most industries, there are particular industries with unique requirements that warrant specialized systems. Inventory management is complex and varies depending on your industry, your function within the company, and the type of item being managed.

Inventory management involves making trade-offs between revenue, cost, and risk. Classified on the balance sheet as a current asset, inventory consumes company cash. Careful attention must be paid to the length of the cash conversion cycle—the time between purchasing raw materials or merchandise to the final sale of finished products and receipt of payments from customers.


Therefore, embracing the latest technological innovations strengthens the business goals by significantly impacting the decisions and making the operations more cost-effective. Embracing a transportation network that responds to your organizational needs is significantly optimizing the last-mile delivery and reducing transportation costs. Therefore, it is known to be one of the major functions of logistics as it is driven by strategic planning and determines the success of the supply chain ecosystem. Retail inventory management software allow retailers to swiftly react to changes in buying behavior and adjust their channel strategies and inventory levels.

Typical data elements can include YTD totals, and total yearly demand and quarterly totals, with percentage comparisons of items and their product group total. Because of the requirements of factors of production such as power, materials, water and labor, the economical location for manufacturing is often at a considerable distance from the major market. To provide maximum supply service, consistent with maximum efficiency and optimum investment. From buying, selling, and keeping the stock organized; inventory management plays a significant role. Get thorough information and clarity about inventory management from this article. The Business Application Support functional area at SLAC provides administrative computing services to the Business Services Division and Human Resources Department.

A good inventory management system allows you to have satisfied customers because you will always have sufficient stock to meet their demand. Inventory management is also important because it makes it easy for businesses to track stocks and replenish their stocks when required. It is also important as it gives insights into trends and inventories that are most profitable for your business. Inventory control by businesses is done to ensure an adequate stock quantity. It guides entities on quality control, operational control and ensures accounting accuracy. It will help the business meet the projected demand with the least inventory holding cost and plan purchases ahead of time.

Inventory management keeps marketing goals secured by ensuring the right items are available at the right time, and it keeps your finances aligned by controlling the flow of stock. Inventory management is a technique of controlling, storing, and keeping track of your inventory items. Inventory management is an essential component of supply chain management, as it regulates all the operations that are involved from the moment an item enters your store until it has been dispatched. When you have an inventory system in place, you have a lower risk of overselling. Additionally, you know the expiry date and the manufacturing date which ensures you get rid of the stock on time because it gets expired.

Today, retailers must offer very flexible customer buying options for goods that are offered through different channels. Cycle counting is a method of checks and balances to confirm that physical inventory counts match a company’s inventory records. The periodic counting of individual items throughout the year ensures the accuracy of inventory quantities and values. OptiProERP is a leading global provider of industry-specific ERP solutions for manufacturers and distributors. Item Demand and Forecast – Presents historical data for a user-specified span of time along with the next 12 months of forecasted demand for each item.

Author Andy Lim

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