Effective Inventory Management

Inventory represents money tied up in the warehouses or work in progress until the inventory leaves the company as finished products or components purchased by customers.

In manufacturing companies, it is estimated that about 60% of the cost is related to inventory. Inventories are normally stored in various warehouses or distribution centres in disparate locations locally and globally. While there have been various initiatives like vendor managed inventory (VMI), JIT, etc., that have been practiced by organizations to reduce the cost of managing inventory and serving customers effectively, organizations are constantly looking for ways to reduce their investment in inventory.

Efficient inventory management is the process of ensuring that materials are available for consumption or usage when it is actually needed. It usually involves controlling the inflow of materials in the right quantity, not too much or not too little.

In a competitive environment, companies that operate on low profit margins, poor inventory management can seriously affect the business. The challenge is not to reduce inventory to bare minimum, so as to reduce costs or to buffer plenty of stocks to satisfy all demands, but to have optimum amount to achieve the competitive priorities of businesses efficiently.

Thus, new, and effective techniques need to be adopted to reduce overall costs of holding and ordering inventories and at the same time satisfy customer’s inventory needs.