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Five Ways To Improve Inventory Management 

   
2018-03-02 
Jason DeHaan 
   
Every good business person will want to improve their business in any way, shape, or form. I am going to give you five different ways that you can use to improve inventory management for your enterprise. 

The ways include: understanding inventory, item organization, pricing, valuation, and lowering inventory costs. 

First of all, it is vitally important for you to have a good and clear understanding of what exactly inventory means before you can begin to improve it. Inventory is basically an asset to the company, but for many manufacturing and distributing companies a lot of problems can arise here. That is why an understanding of inventory and the whole process throughout is essential to good inventory management. 

After you understand inventory, you will want to organize the different items that come in and out of the facilities, as well as place a good emphasis on the pricing and valuations of the products. 

Lastly, if the process is understood and you pay close attention to what is going on, you will be able to cut costs because of fewer complications. 

Understanding Inventory 

Inventory is typically not understood very well and is deemed unimportant to many people. Well as a person who has worked in the shipping/receiving/inventory department at a production facility, I have seen the ins and outs of business and realize just how significant this process can be. Good management of inventory can allow you to be very competitive and in some instances, survive, in the supply chain. Tekoa Software has management consultants who have three reasons as to why understanding inventory is just so important. I think they hit on them very well so I have summarized them below: 

1. Demand management covers the processes for sales and operations planning, sales forecasting, and finished goods inventory deployment planning. 

2. Inventory optimization systems are being advocated by some as the supply chain management mechanism that should be used to mathematically calculate where inventory should be deployed to satisfy predetermined supply chain management objectives. 

3. Physical inventory control is a phrase that describes the receiving, movement, stocking and overall physical control of inventories. 

Item Organization 

In order to better manage the inventory, the use of an enterprise system is so important. Enterprise systems have the ability to organize multiple types of data. It does a very good job of organizing different items. This can include both the raw materials that come into the plant, as well as the finished goods that leave. It depends on how the organization decides to structure there item numbers, but it can be good to distinguish raw materials and finished goods. At the plant I worked at the raw materials had a four digit item number, whereas the finished goods had a five digit item number. This allowed us to know the difference and was a check to make sure we were entering the right information into the data system. 

One thing that must be dealt with carefully are the different items that come from various suppliers/vendors. These items might contain specific item code numbers for the supplier to recognize what it is by this. Therefore the company should know to use this alias item number so put on purchase orders so that they know what you are talking about. 

Inventory Pricing 

Having a good pricing system can seriously improve the flow of inventory. There usually is the manufacturer suggested retail price which is the highest retail dollar that would be paid for something. While there also is the standard price that an item is sold at, under the MSRP price. Price codes can be established on an enterprise system so each buyer has their own code. These codes could give discounts to its biggest buyers in order to keep them happy. The discounts are automatically given when the information is entered. 

Inventory Valuation 

Valuation is basically defined as how much the inventory is worth. Since prices fluctuate often, the items at the facilities might not have cost the same amount to buy. Therefore we have to establish a form to value, which normally tends to be an average cost, first in first out method, or last in first out method. The average cost averages the quantity on hand with the average cost it took to buy the items. The FIFO method knows which items came in and when they came out, while the LIFO method knows which the last item to come in was, and it is the first to go out. 

Lowering Inventory Costs 

Lowering the costs of inventory is what every inventory manager should strive to do. Having a good knowledge of the flow of inventory is helpful in order to know when and how much items need to be purchased. The organization of the items, such as knowing their locations, is very supportive to the idea of keeping a low amount of inventory. This can allow for the company to utilize its space in order to be more efficient. 

Understanding the process of inventory can help an inventory manager lower the costs related to inventory, and can help with the pricing, valuation, and item organization in a business. 

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