What is inventory management?
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Illustration showing how inventory management tracks inventory
What is inventory management?

Inventory management, a critical element of the supply chain, is the tracking of inventory from manufacturers to warehouses and from these facilities to a point of sale. The goal of inventory management is to have the right products in the right place at the right time. 

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.

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How does inventory management work?

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.
Why is inventory management important?

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.

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What are the types of inventory management?

Periodic inventory management
The periodic inventory system is a method of inventory valuation for financial reporting purposes in which a physical count of the inventory 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).


Barcode inventory management
Businesses use barcode 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 inventory management
RFID or radio frequency identification is a system that wirelessly transmits the identity of a product in the form of a unique serial number to track items and provide 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.

Key features of effective inventory management
Inventory tracking

Know exactly where inventory is across the supply chain.

Order management

Customize pricing, send quotes, track orders and manage returns.

Transfer management

Move product to where it's most valuable.

Reporting and analytics

Evaluate patterns in processes to forecast future demand and sales.

Purchasing

Create and manage purchase orders.

Shipping capabilities

Automate shipping to reduce errors such as late deliveries or delivering incorrect packages.

What is an inventory management system?

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.

Optimize your maintenance, repair and operations (MRO) inventory
The future of inventory management

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:

Artificial intelligence

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

Internet of Things

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

Blockchain

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

Intelligent order management

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

Quantum computing

Unprecedented computational power will solve previously unsolvable problems.

Explore the supply chain of the future
Related solutions
IBM Sterling® Inventory Visibility

Optimize your business operations to enhance customer shopping experiences and prevent inventory stockout and overselling. Gain the real-time inventory visibility you need to manage profitable and scalable omnichannel experiences.

Explore IBM Sterling Inventory Visibility
IBM Sterling Intelligent Promising

Enhance shopper experiences from discovery to delivery. Preserve brand trust by providing shoppers with greater certainty, choice and transparency across their buying journey.

Explore IBM Sterling Intelligent Promising
IBM Sterling Order Management

Accelerate transformation by simplifying technology integrations to deliver omnichannel order fulfillment processes such as real-time inventory and warehouse management, curbside pickup, buy online pickup in store (BOPIS), and ship from store (SFS).

Explore Sterling Order Management
IBM Sterling Order Fulfillment Optimizer

Apply the power of AI to digital supply chain transformation. Improve supply network resiliency and sustainability, increase agility and accelerate time-to-value through actionable insights, smarter workflows and intelligent automation.

Explore Sterling Supply Chain Intelligence Suite
IBM MRO Inventory Optimization (IO)

Uncover a clearer, more accurate view of your inventory, and make informed decisions that help improve margins, increase service levels, and minimize unplanned downtime.

Explore MRO IO
Resources IDC Whitepaper: The Essential Guide to Engaging Customer Experiences with Intelligent Promising

The modern digital consumer is increasingly demanding and will abandon retailers that do not meet their expectations.

Discovery to delivery: transform the shopper’s journey

Today’s customers expect retailers to provide early, accurate and reliable order and delivery promises to shoppers. What happens if retailers don’t meet these promises?

IDC infobrief: Progressing Supply Chain Resiliency

A resilient supply chain must be able to see what is happening (visibility), quickly analyze those events/data (intelligence), and respond appropriately (agility).

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