Select Page

No matter the size of your company or the industry you are in, you have to have a firm grasp on the inventory of your business since it drives the processes around you. Inventory Management forms an essential part of businesses in that regard.

Keeping in view the importance and benefits of inventory management, we created this post to detail the fundamentals of inventory management, its various types, benefits, ideal features, and different methodologies.

Let’s start with a core question:

What Is Inventory Management?


Inventory management refers to the management, organization, storage, and optimization of a company’s assets.

The main aim of inventory management is to efficiently store the goods, and make sure that the raw material needed is always sufficient. In addition, it also ensures that the quantity of products neither exceeds nor falls under the demand.

Earlier, we said that inventory management is a core part of a business, why is it so? What makes inventory management so essential?

Well, contrary to common belief, inventory management is not limited to the storage of raw materials and goods, it goes well beyond that.

The practice allows a company to keep up with its supply and demand. A slight disturbance in this aspect can result in disruption in the whole process.

Efficient management of a company’s inventory can certainly reduce the costs spent on excessive buying and storage of raw materials or products.

Furthermore, an inventory management system can be a means of keeping a balance between the stored raw materials and products and the production demand. It can help you track the supply and demand so that you are never all out on necessary materials and also, do not have excessive material taking up essential storage space in your company’s warehouse.

At this point, we would like to highlight that vendor-managed inventory is not limited to raw materials. There are different types of inventory that can be managed optimally. We will now give you a rundown of these various types of inventory in different businesses.

Types of Inventory:

There are five types of inventory that you may come across in inventory management. These include:

  • Finished goods: Finished products that are ready for sale.
  • Raw materials: The materials used in the making of the product.
  • Work-in-progress: Things that are in the middle of production and are not ready for sale.
  • MRO (Maintenance, Repair, Operations) goods: The goods that are not essentially a part of the end-product but are helpful in the production stage.
  • Safety stock: The assets kept in store to deal with emergency demand and supply situations.
  • Packing material: All the material that is used in the packaging process at the finale of the production process.

So, inventory takes various forms and is essential at different stages of production. The quick and efficient availability of the inventory has an impact on how processes move in the company.

Now that you know what inventory and inventory management are, we would like to walk you through the benefits of inventory management and why exactly is it essential for a business.

Benefits Of Inventory Management:


An efficient inventory management system can transform the way you do business. not only will it help in cost-cutting but also prove helpful in optimizing processes in the company.

Some of the most enticing advantages of the process are:

  • Smoothens And Fastens Business Processes: By keeping a track of the inventory, you can quicken the business processes taking place in your company. For example, balancing the demand and supply of goods can help you ensure that you are always equipped with all the necessary equipment.

Also, it makes sure that you are not wasting excessive resources on the storage of unnecessary goods. The balance between both ensures that the production will run smoothly and you will always have ample products in your inventory.

  • Accurate financial reports: With all the data collected over the business year, you can create accurate financial reports with detailed data.
  • Detection of issues: Another major benefit of vendor-managed inventory is that it helps you detect issues or potential pitfalls in the processes. You can quickly identify and track a gap in the number of assets and the end products. Tracking helps you identify and resolve issues rather quickly.
  • More satisfied customers: Happy customers mean more business hence better profitability. With inventory management, you can make sure that customers get the products they ordered. In case of a discrepancy, you can make it up to them with a replaced good.
  • Lower chances of theft: A stable and efficient inventory management system keeps a track of all the goods contained in the inventory reducing the chances of theft.
  • Enhanced efficiency: Since inventory management helps you keep an eye on the assets of your company, you can easily manage the costs of production and the material used. With all the data at hand, you can devise strategies to improve your work and enhance your efficiency .
  • Better forecasting: Inventory management helps you gather information about the essentials and waste materials lying around. With this data, you can get rid of the excess and focus your resources on making the most of the resources you have. You can essentially identify the resources that will come in handy in the future and the useless ones.
  • Time-efficient: You no longer have to waste time manually managing the inventory, you can use inventory management software to do the task for you. Hence, you can also save a lot of your time and effort.

All in all, inventory management is a win-win through and through.

Methodologies Of Inventory Management

We will now take a look at different methodologies or techniques in inventory management. These methodologies can help you understand how to manage inventory efficiently.

Since there is a long list of these methodologies, we will focus on a few of the most common ones:

1. Economic Order Quantity (EOQ):


Economic Order Quality is a formula in inventory management that allows you to buy an essential amount of goods required for the production of the end product. With the help of this formula, you can buy the optimal amount of goods required without wasting your resources.

The formula is:

EOQ= √ (2DK / H) where,

D = Order costs

K = Demand rate

H = Holding costs

2. Just In Time (JIT)

Just in time or JIT is one of the most popular techniques in inventory management. In this practice, only essential raw material is ordered from the supplier in relation to the orders received. This helps you reduce the costs of buying excessive goods.

JIT comes in handy for smaller businesses and startups where owners have to keep the money in the loop and reserving stocks is not an option.

Keeping your inventory stocks to the minimum not only helps in cost-cutting but also minimizes risks involved in the storage of material and helps improve the quality of the products.

3. ABC Analysis

ABC analysis follows the Pareto principle wherein 80% of the value is derived from 20% of resources. The method of inventory management aims to prioritize the essentials in three different categories:

  • A: Most valuable Products that play a critical role in the business processes
  • B: Products that are somewhat important for your business.
  • C: Least important goods that are not really essential but can help increase profitability.

4. Cycle Counting

This method of inventory management does not require repeated tracking or checking. According to this method, once you have stored all the data of the inventory, you can set a date to review the changes and update the data accordingly.

This saves you from the effort and time to input the data again and again and track each and every essential. You can just take a look at your records and identify discrepancies if any.

5. Bulk Shipments

Buk Shipments is a cost-effective method wherein companies buy bulk essentials. This helps save time and money.

The method can produce profitable results if your company gets orders regularly, otherwise, the raw materials can be a liability that will slow down processes and freeze your assets.

6. FIFO and LIFO

FIFO or First In, First Out and LIFO or Last In, Last Out are two management methods. FIFO aims to sell the old inventory first and the new inventory last.

In contrast, in LIFO latest items are sold first and the earlier ones are left behind. Among FIFO and LIFO , FIFO is a better option since it keeps your inventory fresh with newer options.

Inventory Management Software:

How To Manage Inventory with fewer costs, Effort, and time? Simple, get an efficient inventory management software .

Inventory management software can help you in the efficient management of your inventory. These tools are packed with features that allow you easily and quickly keep a record of all the assets in your warehouse.

With the help of good inventory management software, you can also keep track of the goods and identify issues and risks, if any. It can also significantly reduce the time and effort spent on usual inventory management.

When it comes to inventory management, there are hundreds of options in the market. Since it can be tough for you to make a call, we have compiled a list of ideal features that should be a part of your software.

Ideal Features of An Efficient Inventory Management Tool:

When looking for a good inventory management system, you should make sure that it offers the following features:

  • Efficient Inventory Management Features: So that you can store, manage, organize and optimize your resources for your use.
  • Automations: So that you can enjoy flexibility and easily manage the inventory without much hassle.
  • Tracking: Tracking will allow you to keep an eye on the goods stored and sold.
  • Reports: it should generate reports to update you about the latest trends in the market, the ongoing processes, etc. the information can play a critical role in determining your future decisions.
  • Customization features: Customization of the inventory can give it that personal touch that will help you personalize your space according to your preferences.
  • Third-party integrations: Integrations with other apps and tools will help unify your workplace and will certainly save a lot of your time and effort.
  • Easily accessible: The tools should be easily accessible from anywhere in the world so that you can always stay updated.
  • Security: Security is another essential feature since the data might be confidential.

Note: You should opt for such a tool that offers most of these features.


Inventory forms are an important part of any business. This is why inventory management software is a non-negligible essential that can play a critical role in how you store and use your assets.

Have you ever used inventory management software? If yes, how was your experience? Let us know by writing to us at We would love to hear from you.

Till next time, Goodbye!

The post Guide to Inventory Management – Introduction, Types, Benefits, and Methodologies appeared first on Productivity Land .

Click For Original Article