What is inventory management?

Inventory management requires inventory visibility, knowing when to order, how much to order and where to store stock. Multichannel order fulfillment operations typically have inventory spread across many places throughout the supply chain. Businesses need an accurate view of inventory to guarantee fulfillment of customer orders, reduce shipment turnaround times and minimize stockouts, oversells and markdowns.

The basic steps of inventory management include:

1. Purchasing inventory: Ready-to-sell goods are purchased and delivered to the warehouse or directly to the point of sale.
2. Storing inventory: Inventory is stored until needed. Goods or materials are transferred across your fulfillment network until ready for shipment.
3. Profiting from inventory: The amount of product for sale is controlled. Finished goods are pulled to fulfill orders. Products are shipped to customers.

Inventory can be a company’s most important asset. Inventory management is where all the elements of the supply chain converge. Too little inventory when and where it's needed can create unhappy customers. But a large inventory has its own liabilities, the cost to store and insure it, and the risk of spoilage, theft and damage. Companies with complex supply chains and manufacturing processes must find the right balance between having too much inventory on hand or not enough.

The periodic inventory system is a method of inventory valuation for financial reporting purposes in which a physical inventory count is performed at specific intervals. This accounting method takes inventory at the beginning of a period, adds new inventory purchases during the period and deducts ending inventory to derive the cost of goods sold (COGS).

Businesses use bar code inventory management systems to assign a number to each product they sell. They can associate several data points to the number, including the supplier, product dimensions, weight and even variable data, such as how many are in stock.

RFID, or radio frequency identification, is a system that wirelessly transmits the identity of a product in the form of a unique serial number. It tracks items and provides detailed product information. The warehouse management system based on RFID can improve efficiency, increase inventory visibility and ensure the rapid self-recording of receiving and delivery.

Spreadsheets, hand-counted stock levels and manual order placement have largely been replaced by advanced inventory tracking software. An inventory management system can simplify the process of ordering, storing and using inventory by automating end-to-end production, business management, demand forecasting and accounting.

Globalization, technology and empowered consumers are changing the way businesses manage inventory. Supply chain operators will use technologies that provide significant insights into how supply chain performance can be improved. They’ll anticipate anomalies in logistics costs and performance before they occur and have insights into where automation can deliver significant scale advantages.

In the future, these technologies will continue to transform inventory management:

Intelligent, self-correcting AI will make inventory monitoring more accurate and reduce material waste.

Data from IoT sensors will provide insight into inventory location and status.

Disparate parties will be connected through a unified and immutable record of all transactions.

Supply chains will master inventory visibility with improved demand forecasting and automation.

Unprecedented computational power will solve previously unsolvable problems.