08 Sep 2022

The Inventory Management – A Key to Run a Successful Venture

Inventory management is a vital element of supply chain management and is critical to any business selling physical goods that involves the timely ordering of products to receiving, tracking, and storage.

The Inventory Management – A Key to Run a Successful Venture

What is Inventory Management?


Inventory management, the heart of the retail business, is the process of managing and organizing stocks of both raw materials and finished goods throughout the supply chain. In business terms, it is defined as the right stock in the right place at the right levels at the right time and at the right costs. In other words, it is the inventory tracking from manufacturers to the logistics to warehouse to the final point of sale. The main aim of inventory management is to reduce the cost of holding inventory while aptly maintaining the stock and quickly making products available to the customers. It also ensures that there is always enough stock to meet customer orders and sends an alert in case of a shortage. Stocking more stock than sales is not at all beneficial for businesses and ineffective management also leads to unsold or dead stock. Inventory management is also a vital part of a company's logistic management, as both inventory logistics and inventory management are interdependent. A well-maintained logistics system improves warehouse as well as operational activities.

What Are the Types of Inventory Management?


Inventory management varies from business to business, so to cater to the requirement of all businesses, there are different types of inventory management. Businesses need to maintain a precise and centralized view of inventory within the system. Different types include:

Retail Inventory Management – Retail inventory management is the management of stock that a business wishes to sell to its customers. The primary goal of every retailer is to make sure that they have enough stock to fulfill their customer demand without overstocking their warehouse, which proves to be expensive.

Multi-location Inventory Management – In this type of inventory management, businesses are required to manage inventory across multiple warehouses, stores, and sales points to ensure that they have sufficient stock everywhere. This is not just restricted to the management of inventory but also requires management at the location level.


What are the Inventory Management Challenges?


No doubt inventory management comes with multiple benefits but businesses are supposed to overcome some of its challenges before enjoying the benefits. Albeit these challenges are experienced in several ways but lead to common problems such as overstocking, understocking, or lost inventory. Let’s discuss the challenges in detail:


Phantom Inventory –The major challenge of inventory management is phantom inventory which refers to a condition where the business point of sale system is reporting inventory available whereas, in reality, the inventory doesn’t exist in the store. This is an expensive condition because it leads to inaccurate stock levels that affect business decisions regarding product offering and reordering.

Changing Demand –Another main challenge is the change in customers’ demands. Like in the time of the pandemic, there was a radical and sudden change in the customers’ demands due to which many stores ran out of stock quickly for several products and found challenges in the inventory replacement.


Issues in Supply Chain – Global supply chain is another factor affecting management of the inventory because any issue in the supply chain of the business may lead to stock out at stores, especially if the business doesn’t have enough stock on hand.

Difficult Inventory Counting Processes – Inventory counting is a time-consuming and complex task. Since it takes a great amount of time, businesses either have to close down their store for a day or ask employees to do overtime, both of which will incur a financial loss. Besides, counting inventory and carrying out inventory replacement manually is prone to errors that may create additional issues.

Disorganized Stockrooms – A disorganized or chaotic stockroom makes it highly difficult for businesses to search inventory for customers when required which leads to a bad customer experience and a reduction in inventory. Keeping an organized stockroom is a challenge faced by lots of businesses.

Inventory Management Process

Inventory management process is the method adopted by the company for recording, tracking, and management of their inventory. Companies should have clear understanding of their inventory management process to execute it efficiently.


Inventory Management Process Steps

All inventory plans are built around the following management processes:

  • At first, the product gets delivered to the facility is the goods make their way to the inventory.
  • The product is then examined, organized, and then stored either through cross docking, drop shipping, or through any other strategy that may work best for the business storage space.
  • Levels of inventory are monitored through physical inventory, inventory cycle count, or perpetual inventory software.
  • Customers place an order, either they purchase in person or through the online store.
  • Approval of customer orders is usually an automated process in the POS system.
  • Ordered products are taken out from the stock with the help of SKU number or packaged and directly shipped to the customers.
  • After this, updating of inventory level is done. In the case of physical inventory, businesses either manually record each sale or discover changes in the inventory whereas in the perpetual inventory program the stock level is automatically changed.

Reordering is triggered by stock levels. To optimize this step and get the goods that businesses need to meet demand, businesses need to calculate their reorder point.

Inventory Management Models


Its objective is to achieve optimum benefit from the inventory, and hence businesses practice inventory control to maintain enough stock to smoothly run their business. Inventory control allows businesses to maintain the right amount of inventory while reducing costs. The most common models often adopted by businesses are:

Economic Order Quantity - It is one of the oldest and most popular models that allow businesses to know the number of inventory units they should order to reduce costs depending on their holding costs, ordering costs, and rate of demand. However, in this model, it is assumed that ordering costs, rate of demand, and inventory unit price is constant, so this model doesn’t work for every company. Thus, for businesses whose product demand varies over periods, and then this model will be of no use to them.

Economic or Inventory Production Quantity - This model specifies the amount of product that businesses should order in a single batch to reduce holding and setup costs. In this case, it is assumed that the supplier delivers the order to the businesses in parts. This model is regarded as an extension of the EOQ model and is considered ideal for businesses that order inventory from suppliers in parts like the case of automotive businesses and businesses whose demand for a product is consistent over periods of time.

ABC Analysis - In this model, the inventory of the businesses are categorized based on their importance. Inventory is categorized into groups A, B, or C where inventory under category A brings more money to the company but this inventory is only a small amount of the total inventory. This inventory is given the most attention and has tight ordering control. Inventory under category B is though not vital but still matters for businesses whereas inventory in category C doesn't bring much profit but it is consistent. Businesses know which inventory is most important and hence they keep their attention on that inventory. To enhance the effectiveness of this model it is mostly used with other inventory management strategies like just in time method.

3SC allows Businesses to Enjoy the Benefits of Inventory Management

Undoubtedly inventory management comes with a load of benefits for any product-based companies that reward them with operational efficiency and longevity. With 3SC effective solutions businesses will get insights into their financial standing, products and business opportunities, future trends, customer behaviors, and preferences. 3SC insightful management will reward businesses with the following benefits:

  • Keep wastage and losses to a minimum
  • Improved customer services
  • Low costs
  • Maintain sufficient stocks
  • Deliver orders perfectly with an intelligent fulfillment platform
  • Optimize fulfillment plans at the lowest cost
  • Inventory visibility provides business goals

Inventory Management FAQs


What Is an Inventory Management System?

It is an integrated software program that tracks inventory, products, orders, and all the elements involved in inventory management and checks both to and from customers and suppliers. Goods are monitored throughout the supply chain, from purchasing to production and to end sales. The inventory management system not only automates multi-channel inventory and orders but businesses also get insight into their performance.

Why Is Inventory Management Important?

Inventory management is a vital part of any successful business because it makes sure that businesses have enough of the right inventory at the right time and in the right place. It is of utmost importance for businesses to have effective inventory management because it will allow businesses to have a fine balance of inventory, no overstocking, and no stockouts. Some of the other importance includes:

  • Prevent spoilage and dead stock
  • Reduce storage costs 
  • Cash flow is improved
  • Optimize fulfillment plans

What Are the Functions of Inventory Management System?


It is a computer-based solution that provides businesses with a solution for inventory management. It assists in keeping track of orders, inventory levels, and sales deliveries making inventory management streamlined. Some of the major functions include:

  • Improved efficiency
  • Enhanced productivity
  • Prevent overstock and stock outs
  • Smooth and easy inventory management 
  • Enhanced profitability
  • Inventory tracking and reports

What Are the Objectives of Inventory Management?


The major objective of inventory management is to create the right balance between inventory investment and customer service. Businesses should always invest only that amount in inventories with which they will be able to meet customer demand for their products. It has both operational and financial objectives, the operational objective is to stock goods in sufficient amounts and the financial objective is to minimize the working capital as much as possible. Some of the other major objectives of inventory management include:

  • Meeting and fulfilling the orders
  • Inventories should be stocked in advance 
  • Systematic control of stocks
  • Reduce the unnecessary capital
  • Prevent loss and wastage
  • Optimize product sales

What Are the Inventory Management Techniques?

Irrespective of the size of the companies, businesses need to employ some common inventory management techniques that prove an ideal way to optimize inventory and take control of the stock. However, businesses should know that they will probably need a mix of different techniques to devise a highly comprehensive strategy for their business. Some of the common techniques include:

  • First in First out
  • Just-in-Time Inventory
  • ABC Inventory Analysis
  • Dropshipping
  • Cross-docking
  • Consignment
  • Last in First Out

What Is the Lead Time in Inventory Management?


Lead time in inventory management is the time between placing a purchase order to replenish inventory and the order received in the warehouse. Order lead time usually depends upon the number of suppliers involved in the chain, if more suppliers are involved in the chain, then the lead time is likely to be longer. The lead times affect the inventory that a company needs to hold at a point. If the inventory lead time is high then company has to wait longer to procure inventory and hence, they will need to stock inventory with more items to fulfill their customer demand that further increases inventory storage costs.

How to Manage Inventory?


It is the procedure that affects ordering, receiving, storing, tracking, and accounting for all the products that the company sells and also provides data for informed purchasing. Businesses selling any type of product need to properly manage goods to survive. It is essential for a business to aptly manage inventory because it not only increases stock accuracy but a good process also provides companies with more time for business-building activities. To efficiently manage inventory businesses can follow the following steps:

  • Reveal the process of product sourcing and storage
  • Choose inventory data tracking process
  • Come out with an internal SKU system
  • Organize and identify storage areas
  • Make use of Forecasting for ordering inventory 
  • Make inventory receipt a must in the inventory management plan
  • Maintain a track of inventory levels

Which Software Is Recommended for Inventory Management?

The inventory management software automates inventory and warehouse management tasks to streamline the tasks of inventory tracking, reorder managing and updating accounting information. Since it affects all aspects of businesses and is the key to running a successful business, companies need inventory management software that helps them in inventory optimization and management. 3SC provides some top software that is recommended to businesses.

Contact 3SC

Leave a Comment

Your email address will not be published. Required fields are marked

Related Blogs


Business Enquiry

3sc solutions