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A Complete Guide To Inventory Management


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Title: A Complete Guide To Inventory Management

A Complete Guide To Inventory Management
  • https//www.imprezz.in/ Imprezz

Inventory is the lifeline of every business which
helps in the smooth functioning of business and
meet the need of customers. The effective
management of your inventory determines
the success of your business. The importance of
managing your inventory should be a primary
objective to overcome the gap between supply and
demand. Any laxness in terms of inventory
management puts the risk of either overstocking
or understocking  contributing to increased
holding cost. In this guide, we help you
understand everything about inventory management
with relevant information necessary for your
What is Inventory Management?
  • Inventory management is a process where you track
    your inventory and stock in and out of the
    warehouse. The objective of tracking your
    inventory is to understand the total inventory at
    a given time and what are the levels of your
    inventory.  Earlier companies were dependent on
    the traditional pen-paper approach to track their
    inventory, but, with the rising complexities,
    companies have adopted various inventory
    management software.
  • If companies dont manage their inventory, it
    might be difficult for them to predict whether
    the existing level of inventory will meet the
    demand in the future or not. Consequently, the
    companies might see a fluctuating level of
    inventory sometimes below the desired level and
    sometimes more than required. Hence companies
    should adopt a stringent inventory management

What is Inventory?
  • The term inventory is used multiple times in this
    blog. What actually accounts for inventory Raw
    materials, finished goods, or stock for the
    purpose of selling? Inventory is basically goods
    that a company handles with the objective of
    selling which might include raw materials
    acquired to manufacture goods or the final
    product from which various constituents are
    extracted. It might even include intangible items
    like software, patents, trademarks, and

Different types of Inventory
  • Inventory can be classified further based on
    their end-use. Lets understand the different
    categories of inventory
  • Raw Material This includes inventory that is
    used to make the finished product.
  • Work-in-progress Inventory that is unfinished
    and is in the process of manufacturing.
  • Finished goods/Goods for sale This includes the
    final product which is ready to be consumed by
    the end-user.
  • MRO Inventory Manufacturing, Repair, and
    Operating inventory that helps in the
    manufacturing process.
  • Safety Stock The inventory that is stored in the
    warehouse to meet the supply shortages and
    increased demand during the uncertainties.

Key Stages of Inventory Management Process
  • The inventory management process starts right
    from the beginning when the stock moves from your
    suppliers to the warehouse. The companies keep a
    track of their inventory management process at
    five stages.

  • Purchasing 
  • It means tracking inventory when it is purchased
    as a raw material to turn into products or sell
    with no further processing required.
  • Production
  • Not all companies are involved in the production
    stage. Some companies make finished products from
    raw materials or constituents, hence it is
    important to track the inventory at this stage.
  • Holding Stock
  • It constitutes the raw material stored before it
    is used in the manufacturing process or finished
    stock before it is sold.

  • Sales 
  • Once you sell the stock to the customer and get
    the payment, its time to keep a track of your
  • Reporting
  • Under this step, the business estimates the total
    sale made and the amount received against that

Inventory Management vs. Inventory Control
  • Most people use these terms interchangeably, but
    it is important to know that both terms have
    distinct meanings and are two different processes
    of inventory.
  • The inventory management process starts from the
    beginning till the stock is out and sold to the
    end-user. However, Inventory control is limited
    to managing stock which you currently have in the
    storage. Inventory control is limited to
    understanding how much stock is available, where
    it is and what condition it is in. The objective
    of inventory control is to reduce the cost of
    holding excessive inventory, minimize the time in
    estimating the total inventory in the warehouse.
  • Inventory management is a broad concept that
    encompasses your supply chain, manufacturing,
    fulfillment, sales, and reporting. Later, it is
    followed by inventory control where you focus on
    optimizing the purchase, control, production, or

  • Basic terminologies used in Inventory Management
  • Once you deep dive into the inventory management
    process, youll come across basic terms and
    formulas. It is important to have a clear
    understanding of these concepts to ease the
  • Cost of Good Sold (COGS)
  • Also, known as Cost of sales refers to the direct
    cost of producing goods, which includes the cost
    of raw material and labor.
  • Days inventory outstanding (DIO)
  • It refers to the average number of days the
    company holds inventory before selling it.

  • Economic order quantity (EOQ)
  • Economic order quantity refers to the optimal
    order quantity at any given point in time, which
    helps to minimize the total holding and ordering
  • Finished goods
  • It refers to manufacturing items/products that
    are ready to sell.
  • Inventory accounting
  • As stated above that the inventory is available
    in three stages Raw materials, Work-in-progress,
    and Finished goods. The inventory accounting
    system keeps a track of changes to inventory at
    all three stages and adjusts their asset values
    and costs accordingly.

  • Inventory Cost
  • Inventory cost refers to the cost involved in
    procuring, storing, and managing inventory. It is
    also categorized into three categories namely
    ordering cost, carrying costs, and shortage
  • Inventory Management Software
  • Automated software to track inventory levels,
    orders, sales, and deliveries. The software helps
    in maintaining minimum stock levels and sends the
    notification every time the stock is below the
    desired level.
  • Lead Time
  • The time period between an order placed and when
    the order is received is called lead time.

  • Point of sale
  • Point of Sale is the time and place in which a
    retail transaction is completed.
  • Purchase order
  • A purchase order is a document created by a buyer
    requesting a vendor for the delivery of goods or
    services. It specifies the type and quantity of
    products, the agreed price, and delivery and
    payment terms.
  • What Next?
  • To understand more about inventory management,
    take a look at our inventory management software,
    which has all the added features to keep your
    inventory in control and save time.

Contact US
Email - info_at_imprezz.in
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