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Why inventory management is critical in the supply chain

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In the world of supply chains, the importance of inventory management can often be overlooked as one of the less pivotal functions. This approach, though, should be taken at your peril.

What is inventory management?

The management of a company’s inventory is the tracking of the stock of items it owns. Depending on the industry and individual business, these usually fall into one or several categories of:

  • Raw materials and components
  • Work in progress (WIP)
  • Finished goods
  • Maintenance, repair and overhaul (MRO)

The process involves managing these stock levels, such as by ordering new stock or organising the delivery of finished goods.

The importance of inventory management in the supply chain lies in it being a delicate balancing act between having too much stock, too little and managing warehouse space. These rapidly changing circumstances and fluidity of the job are what makes it tricky.

Challenges

Overordering is one of the basic worries when it comes to inventory management. Almost all products have a shelf life, whether they’re consumables or not.

For example, a supermarket obviously wouldn’t want to order an excess amount of an item that may pass its sell-by-date while still in the store. However, a clothing manufacturer also wouldn’t want to risk ordering too much of a particular product, because it wouldn’t want to be left with more than it can use before the consumer trend changes.

Even more concerning, however, would be the risk of not having enough stock, running out of inventory and not being able to meet customer demand.

Not only does this result in unsatisfied customers and clients, but it also has a direct and immediate effect on the business’s revenue. Worse still, for suppliers and other organisations, it means those partners' operations will also be impacted, creating a knock-on effect.

The management of warehouse space also plays its part. As well as the limited storage that every business must contend with, the ability to utilise that space effectively will play a large part in the smooth delivery of services and products. By helping to make the inventory more visible, it plays an important role in customer satisfaction.

How technology can help

To operate in its sweet spot, an inventory management system needs to use data from various aspects of the business, from raw materials to sales trends, as well as needing the ability to react quickly to changes anywhere along the line of that process.

Software such as ECI M1 uses this data to form analysis of consumer trends, sales forecasts of various products and availability of raw materials. It can then combine this with information on which stock items move most quickly and control the best use of warehouse space to enable the inventory to operate efficiently.

Moreover, it can use enormous amounts of data to create predictive analysis, such as where consumer trends may be heading and changes in the availability of raw materials. It can then suggest how the inventory should be adapted to deal with that.

Conclusion

Inventory management is, in fact, one of the most critical aspects of supply chain management. As all aspects of a business's smooth running are affected by it, to improve its effectiveness and efficiency through technology can have a marked effect on the bottom line.

ECI Staff Contributors

About the Author

ECI Staff Contributors love to share their insights and expertise on a variety of topics including sales, marketing, cloud, ERP, and SMB development as well as on product specific education. With offices throughout the United States, Mexico, England, the Netherlands, Australia, and New Zealand, more than 40 employees contribute to blog on a regular basis.