Inventory Management Assignment Help

What is Inventory Management?

The inventory management is the process of ordering, purchasing, storing, using and selling of company’s inventory. It generally refers to the process of managing the raw materials, work-in progress and the finished goods. It involves the entire process of managing the inventories from raw materials to finished goods. Inventories are the most valuable assets of the company. In industries such as manufacturing, retail, food services , inventory-intensive sectors, and the company’s inputs and finished goods are the core of its businesses. A shortfall in adequate amount of inventory are detrimental for the success of the firm.

However, it must be considered that large inventories carry the risk of theft, spoilage, damage or shifts in demand. The company’s inventory must be insured so that the if the company was unable to sell the goods in time or from being destroyed. One of the most important parts of any business plan is inventory. Keeping a tight eye on inventory movement may make or destroy a firm, which is why entrepreneurs place such a high value on inventory management. While some business owners recognise the need of inventory tracking on a regular basis, others do not, causing their company to fall through the cracks.

Why is Inventory Management Important?

Inventory management is very essential for the business as it can make or break a business. It is generally the largest item in the current assets of the company, especially in the retail industry. If the company is unable to manage the flow of inventory effectively, the company would incur losses, which could even lead to failures. Proper management of inventory enables businesses to thrive and achieve success. A good inventory management system strikes the balance between the flow of inventory outside and within the organization. It controls the costs and timing of non-capitalized assets of the firm, which enables the business to reach the optimal profitability.

The main purpose of the inventory management is to strike balance between the overstock and the understock of goods. When a company invest more in inventory than it can actually sell, there are high chances of having deficit in the budget. The business would have to deduct the cost of inventory that are in excess from the actual profits.

Failing to have adequate inventory for meeting the demands of the customers could hurt the reputation of the business. The main task of the inventory management system is to accurately forecasts how much inventory would be required on the basis of sales activity of the firm. For doing so, the inventory manager is required to understand the demand of its products along with the product’s depreciation rate. The primary purpose of the inventory management system is to ensure that enough goods are available with the firm to meet the demand of the customers, without having too much excess inventory.

Benefits of Inventory management system

There are several advantages of having an inventory management system. Tracking of the customer demands and ensuring that adequate quantity of goods are available with the firm for the customers. Some of the benefits of the inventory management system are explained in detail below:

Saves Money: Effective inventory management can help the entities to save their money engaged in keeping high inventories. By keeping the minimum required stock for meeting the sales demand, the entities could save their money and utilize it where it needed the most. It would also help in reducing the holding costs such as insurance, storage and handling expenses. In order to take full advantage of cost efficiencies, the inventory manager shall monitor the relevancy of the minimum stock and adjust according to the current demand of the commodity.

Improves Cash Flow: Inventory management can be used by the organization to improve the cash flow. Inventory is used for generating inflow of cash through sales and the purchase of inventory requires the outflow of cash. Both these transactions have an impact on the liquidity position of the company. An Increase in inventory would have a negative effect on the cash flow whereas the reduction in inventory would reflect the positive impact on the cash flow. Holding more inventory than what is actually required would have negative impact on cash flow, however, with the help of inventory management system, the company would be able to determine the quantity of goods required for actual sales. It would help in reducing the costs involved in excess inventory.

Satisfies Customers: Effective inventory management system also helps in satisfying the customers by keeping adequate amount of goods at all times to meet the needs of its customers. A customer feels satisfied when they gets required goods at the right time and in right quantity. The inventory management allows the businesses to satisfy the customer needs and achieve their organizational goals.

Different Types of Inventories

There are different types of inventories that are need to be managed. They are explained in brief below:

Merchandise Inventory: These are generally the goods stored for trading by the retailers and merchandisers.

Manufacturing Inventory: The manufacturing inventory refers to the goods that are stored for manufacturing and selling of goods. The manufacturing inventory are further classified into three categories including raw materials, work in progress and Finished goods.

• Raw materials: It refers to the goods required for the manufacture of goods. The manufacturing of goods requires raw materials. Adequate amount of raw materials must be maintained by the company to ensure continuity of operation.
• Work in progress: It refers to the partly processed raw materials that lying on the production. It is also known as semi-finished goods. This type of inventory should be kept as low as possible due to the fact that lot of money.
• Finished Goods: It refers to the final products that are left after the completion of manufacturing process. These are the goods that are available for sale.

Other categories of inventories include packing material and MRO goods. The packing materials are the inventories that are required for packaging the finished goods manufactured by the company whereas the MRO goods stands for maintenance, repair and operating supplies.