Inventory management

From LIMSWiki
Jump to navigationJump to search

Field inventory management, commonly known as inventory management, is the task of understanding the stock mix of a company and the handling of the different demands placed on that stock. The demands are influenced by both external and internal factors and are balanced by the creation of purchase order requests to keep supplies at a reasonable or prescribed level. Inventory management is important for every other business enterprise.

Retail supply chain

Inventory management in the retail supply chain follows the following sequence:

  1. Request for new inventory from stores to head office,
  2. Head office issues purchase orders to the vendor,
  3. Vendor ships the goods,
  4. Warehouse receives the goods,
  5. Warehouse stores and distributes to the stores,
  6. Shops and/or consumers (e.g. wholesale shops) receive the goods,
  7. Goods are sold to customers at the shops.

Software applications

Inventory management software is a tool to help efficiently manage stock. While the capabilities of applications vary, most inventory management applications give organizations a structured method of accounting for all incoming and outgoing inventory within their facilities. Organizations may save costs associated with manual inventory counts, administrative errors and reductions in inventory stock-outs.

Often tracking stock just through sales and returns is not enough for retailers and does not meet the demands of customers multichannel expectations. Customers expect retailers to have real-time knowledge of stock availability. This can be a challenge for retailers who may have on-line as well as bricks and mortar outlets.

A good inventory management system will be able to list all stock options with a size colour matrix as well as give live reports on best or worst sellers, supply chain and sales staff.

Many large organizations use sophisticated ERP systems such as Oracle EBS[1] and SAP for inventory management.[2] Stock modules in these ERP systems provide many of the options needed to manage inventory.

The stock size needs to correspond to the amount of products which are sold. If the stock is too large (especially with perishable goods as fruit, vegetables...) there is a risk of financial losses as some of the inventory may spoil while sitting in the store. To reduce this risk (and keep financial losses as small as possible), there is hence benefit in precisely recording the weekly purchases of the shop's customers. This can be done through purchases tracking per individual shopper.[3][4][5][6]

Techniques used in inventory management

  • ABC analysis – This technique involves categorizing inventory items into three categories based on their value and importance. Category A includes high-value items that are critical to the business, category B includes medium-value items, and category C includes low-value items. By categorizing inventory items in this way, businesses can focus their efforts on managing the most important items more closely.[7]
  • Demand forecasting – This involves estimating the future demand for a product or service. It is a critical component of inventory management and helps businesses plan their production, inventory, and sales strategies.[8]
  • Just-in-time (JIT) inventory – JIT inventory involves ordering and receiving inventory just in time for it to be used in production or sold to customers. This can help businesses reduce their inventory carrying costs and minimize the risk of inventory obsolescence.
  • Economic order quantity (EOQ) – EOQ is a mathematical formula that calculates the optimal order quantity for a particular item based on factors such as demand, lead time, and ordering costs. By using EOQ, businesses can ensure that they are ordering the right amount of inventory to meet demand while minimizing their inventory carrying costs.[9]

See also


  1. ^ "Oracle Inventory User's Guide". Retrieved 2017-12-14.
  2. ^ SAP, Fine tune inventory management and optimise service – with powerful software from SAP Archived 2018-10-08 at the Wayback Machine, accessed 8 October 2018
  3. ^ How supermarkets get your data – and what they do with it
  4. ^ When AI meets your shopping experience it knows what you buy – and what you ought to buy
  5. ^ "12 Sneaky Ways That Big Retailers Track Your Every Move". Business Insider. Archived from the original on 2022-03-08.
  6. ^ MED Warehouse
  7. ^ Chakraborty, S. K. (2004). Cost Accounting And Financial Management (For C.A. Course-1). New Age International. ISBN 978-81-224-1551-3.
  8. ^ DLSM, Terese Ong Yee Chiat (2018-02-08). "Five Important Techniques for Effective Inventory Control - SIPMM Publications". Retrieved 2023-04-17.
  9. ^ "7 Inventory Management Techniques". Business News Daily. Retrieved 2023-04-17.


This article is a direct transclusion of the Wikipedia article and therefore may not meet the same editing standards as LIMSwiki.