Inventory-Levels
The process of ordering, storing, using, and selling a company's inventory is known as Inventory Management.
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Effective inventory management is essential for companies that sell tangible products. One of a business's most important assets is its inventory, but it may also be a liability because of things like theft, damage, spoiling, and changes in demand. Businesses of all sizes benefit from effective inventory management since it helps them determine when to sell, how much to buy or manufacture, and when to resupply. It has a direct impact on profitability and is necessary for a company to grow. Knowing when to buy more of a particular product, preventing item loss, and promptly fulfilling customer orders are all made possible by efficient inventory management.
Tools and Techniques for Inventory Management
A business may employ a variety of inventory management techniques, depending on the nature of its operations and product line. Just-in-time (JIT), materials requirement planning (MRP), economic order quantity (EOQ), and days sales of inventory (DSI) are the four main approaches to inventory management.
- JIT, or just-in-time, management Japan is where this manufacturing and inventory management model first appeared. By just buying and holding onto the inventory required to manufacture and sell goods within a specific time window, JIT enables businesses to cut waste and save money. This method lowers the cost of insurance and storage, as well as the expense of getting rid of extra inventory. JIT, however, can be dangerous if demand increases suddenly or if there are even minor delays, as this could result in bottlenecks or the inability to meet demand.
- Sales Forecasts are used to calculate when to place new orders and how much inventory should always be on hand.
- Economic Order Quantity (EOQ) determines how many units a business should add to its inventory with each order in order to lower the overall expenses of its inventory. Holding and setup charges are among the expenses taken into account. In order to prevent ordering too frequently or having too much inventory on hand, the EOQ model aims to guarantee that the proper amount of inventory is ordered each time. It makes the assumption that the expenses of setting up and maintaining inventory must be traded off in order to minimize the overall costs of inventory.
Analysis Tools Used
Fast and Slow Moving Inventory Analysis