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Inventory management is a complex system of interconnected tasks and processes. Regardless of what your business sells, the products are likely stored in one or more locations as inventory.
An inventory management company is important for your company, regardless of whether it is (just) a stack of cardboard boxes or warehouses with parts and materials strategically located around the world. Before you can sell your inventory, you need to take it in and also manage it.
Inventory management starts at your company’s main warehouse, but every element in the supply chain can affect inventory management. Inventory management is a top priority for any business that sells goods.
“Inventory” means the finished goods, work in progress, and raw materials of what your company is selling or planning to sell. So the definition is pretty clear. While inventory management is a complex task, which includes the following elements:
- Inventory visibility and assessment
- Lead times to replenish raw materials and finished products
- Returns of defective goods and materials
- Management of the available physical space
- Management of order, shipping, processing and transport costs
- Forecasting future prices, inventory levels and demand
Inventories have been around for thousands of years, since humans have traded with one another. The digit zero was invented in India in the fifth century as a placeholder for bookkeeping and inventory. The counting system for inventory management is at least 5,000 years old.
The main goal of inventory is to provide accurate, comprehensive, and up-to-date information on the location and status of every major item in your inventory.
A secondary, but equally important, goal is to identify missing or non-functioning inventory and to replace or repair it as quickly and economically as possible.
Do you have enough stock to meet the demand? Or are you holding too much stock? How do you know if your targeted service level meets your company’s expectations while keeping your stock investment under control?
Availability is the lifeblood of the company for most companies. However, while business departments in the business world expect 100% availability, inventory management firms know this is not a useful goal.
Considering the obsolescence and the cost of holding in stock, holding excess stock can have a very negative effect on profit margins and put the working capital in a difficult position.
For many companies, the criteria for determining service levels are often unclear, although the service level target is set on the basis of a rapid and uncertain analysis by the business advisory firms.
Also, it is always difficult to measure service level quality, as it can only be observed after a certain period of time. Often when a service level that is not correctly determined has a negative impact on the safety stock, service levels are reviewed and adjusted quickly without real analysis.
For this reason, service levels are not regularly reviewed. Should this situation worry you? Yes, if you think your service level has the potential to affect both your profit margin and overall business performance.