Inventory Management

An approach for storing and sourcing inventory, both raw materials and finished goods. Determining the health of the supply chain as well as the impacts the financial health of the balance sheet, every organization constantly strives to maintain optimum inventory to be able to meet its requirements and avoid over or under inventory that can impact the financial figures.

Inventory management means having the right stock, at the right time. It basically refers to the process of ordering, storing and using a company's inventory. This includes the management of raw materials, components and finished products, as well as warehousing such items.

As a part of supply chain, aspects such as controlling and overseeing purchases from suppliers as well as customers, maintaining the storage of stock, controlling the amount of product for sale, and order fulfilment are all included in Inventory Management.

A company's inventory is one of its most valuable assets and can be thought of as a liability (if not accounted in the right way). A large inventory carries the risk of spoilage, theft, damage or shifts in demand. Inventory must be insured, and if it is not sold in time it may have to be disposed of at clearance price or simply destroyed. So, for these reasons, inventory management is important for businesses of any size. Knowing when to restock inventory, what amounts to purchase or produce, what price to pay as well as when to sell and at what price can easily become complex decisions.

An entrepreneur must know when to reorder, how much to order, where to store stock, 

Example of DELL, which has manufacturing facilities all over the world. They follow a concept of Build to Order where in the manufacturing or assembly of laptop is done only when the customer places an order and confirms payment. Dell buys parts and accessories from various vendors. They have also taken an initiative to work with third party service providers. The third party service provider receives the consignments and holds inventory of parts on behalf of Dell’s suppliers.

Benefits-

1.      DELL gets to postpone owning inventory until at the time of actual consumption. Thereby with no inventories. DELL They don’t have to invest any working capital into holding inventories.

2.      The method allows companies to save a lot of money and reduce waste by keeping only the inventory they need to produce and sell products. This approach reduces storage and insurance costs, as well as the cost of discarding excess inventory.

JIT inventory management can be risky. If demand unexpectedly spikes, the manufacturer may not be able to source the inventory it needs to meet that demand, damaging its reputation with customers and driving business toward competitors. Even the smallest delays can be problematic