What Is An Inventory Management System?

Do you want to learn everything about an inventory management system? Then stick to this article! 

Most people have thought of inventory, they think it is a retail application. While retail operations rely heavily on inventory management.

Inventory management systems are widely used in various industries from manufacturing to utilities, healthcare, education government, and more. 

Moreover, inventory management systems streamline and centralize the process of controlling the flow and maintenance of inventory to ensure that the right amount of inventory is available with the right qualify. 

In this article, you will know the overview of what inventory management entails. 

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What Is An Inventory Management System? 

An inventory management system is the process by which you can track your goods throughout your entire supply chain from purchasing to production to end sales.  

Moreover, this governs how well you can use inventory management for your business. 

Maybe you are holding many inventory in your business, you will need to stay efficient and maintain healthy margins. An effective inventory management system exists to assist you in achieving this. 

However, companies that are dealing with physical goods must find a solution for managing inventory. 

In some cases, using an Excel or Google Sheets spreadsheet will suffice as the company’s inventory management system. 

Furthermore, diverse firms opt for dedicated inventory management software that is designed to boost efficiency and reduce costs. 

Factors like your business size, complexity and inventory requirements determine the best inventory management system for your specific circumstances. 

Types of Inventory Management Systems 

Different types of inventory management systems are available to businesses and the kind of system you use depends on the nature and needs of your business. 

Here are the different types of inventory management systems: 

• Periodic Inventory Management System 

This kind of system requires manual counting of inventory at specific intervals like weekly, monthly or quarterly.  Moreover, it is used for small businesses with a limited number of products. 

• Perpetual Inventory Management System 

This system makes use of technology such as barcode scanning or radio frequency identification (RFID), to track inventory at all levels in real time. In addition, it is suitable for large businesses that have a higher volume of products. 

• Just-In-Time (JIT) Inventory Management System 

It involves ordering and receiving inventory timely to meet demand. Also, it helps businesses to reduce inventory holding costs and improve cash flow which requires careful coordination and planning.  

• Material Requirements Planning (MRP) Inventory Management System 

This system makes use of software to plan and control inventory levels based on the scheduled production. 

Moreover, it helps businesses make sure they have the necessary materials on hand to meet production needs.

• Distribution Requirements Planning (DRP) Inventory Management System  

This system makes use of software to manage inventory levels across different locations and distribution centres. 

Also, helps businesses to optimize inventory levels and reduce costs associated with carrying excess inventory. 

• Advanced Planning and Scheduling (APS) Inventory Management System 

It makes use of data analytics and machine learning to optimise inventory levels, production schedules and distribution. 

Furthermore, the bigger business makes use of complex supply chains. 

READ MORE: Inventory Management Officer at MainOne Cable Nigeria

Benefits of An Inventory Management System 

Without this system, the goods and products that flow through an organization will be disorganized. 

An inventory management system helps the company maintain a centralized record of every asset and item in the control of the organization. 

There is a provision of a single source of truth for the location of every item, vendor and supplier information, specifications, and the total number of the particular currently in stock. 

Moreover, the inventory contains movable assets, and inventory management systems are important for keeping tabs on current stock levels.

Also, understanding the items that move quickly and the items that are slow in moving helps organizations determine when it’s time to reorder with accuracy. 

Overall, these system offers countless benefits to companies which are: 

• An improved cash flow 
• Better reporting and forecasting capabilities 
• It helps to reduce the storage costs 
• Reduction in labour costs 
• Reduction in dead stock 
• Better organization 
• It boosts transparency 
• It enhances supplier, vendor and partner relationships. 

Challenges of An Inventory Management System 

This system can have a dramatic effect on productivity and efficiency when implemented properly. 

Most of the challenges that occur with inventory management systems arise from failing to follow best practices or relying on outdated methods like manual documentation and inconsistent storage layouts and processes. 

Moreover, a good inventory management system will reduce human error by eliminating manual documentation through the use of barcode labels, barcode scanners, and inventory management software, to reduce costly mistakes like: 

• When you have too much slow moving inventory in stock takes up valuable storage space and eats into the company’s bottom line.  
• Running out of stock unexpectedly can delay the supply chain due to backorders. 
• Keep inaccurate records like incorrect numbers, and incorrect inventory counts that arise from manual documentation errors. 
• Wasted man-hours spent tracking down items that are stored in the wrong locations. Inventory storage that’s not optimized for efficiency (due to poor warehouse or stock room layouts) can easily increase the stock picking time, which increases labour costs.  

Best Practices For Management Systems 

Cleary Inventory explains that a good inventory management system can help boost productivity but only when you set up with some essentials that are: 

• Location names 
• Easy-to-read location labels 
• Unique item identification numbers
• To start a count 
• Units of measure 
• A software solution that works well and monitors all track activity
• People that know how to support these policies and processes. 

READ MORE: Inventory Control Officer: Job Description, Duties, and Salary

Conclusion 

Implementing an inventory management system can be complex. It is not about purchasing a good software program, an inventory management system must address the people, processes and technologies from end to end. The inventory management system is an investment that will pay for itself again and again through great efficiency.