Logistic & transportation

Guide To Build An Effective Inventory Management System

Inventory Management System

Controlling Inventory Management System, from raw materials to finished goods, is all about controlling the flow of goods. The purpose of this article is to explain how to build a system for managing inventory, which often times matters most to an organization’s supply chain.

It is essential that organizations have enough inventory to meet customer demand each month, as well as the ability to respond quickly to changing market conditions. Having an inventory management software solution can be tremendously beneficial if you have a growing demand for inventory.

Types of Inventory Management System

To manage inventory effectively, you must know exactly what inventory consists of. Here are some examples of inventory types: 

  • Raw materials, including materials used in manufacturing
  • Products that are not yet finished, works in progress that are not yet ready for sale
  • When finished products are ready for sale or shipment, they are usually stored in a warehouse
  • Transporting goods that are in transit from a warehouse to a final destination
  • An inventory cycle involves products that are shipped from a manufacturer or supplier to a business then sold immediately
  • An excess of inventory that anticipates a surge in sales
  • This includes parts, supplies, and products that are stored in anticipation of a slowdown or a halt in production
  • A MRO good supports the production process by providing maintenance, repair, and operating supplies
  • In a safety stock, or buffer inventory, extra inventory is kept in order to cover no-shows or unexpected events 

Sorting your inventory allows you to identify what items are grouped together, so you can manage accordingly. As an example, you’ll treat finished goods differently than raw materials.

Inventory management benefits

Retail success depends on keeping track of your inventory. You are responsible for supplying the products consumers demand to keep them satisfied. Managing inventory effectively allows you to do that.

Effective inventory management provides the following eleven benefits. Using dedicated inventory management software can enable businesses to keep up-to-date with their stock levels in real-time.

You will be able to control everything on-site as well as remotely, and when complemented with a procurement platform the results will be even better. Find out more at

1. A lower number of missed sales

You may miss sales if you don’t keep an accurate inventory report. Utilize an inventory report instead of relying on memory or a visit to the warehouse to determine what to reorder:

  • Get a quick overview of your remaining products
  • Assess your inventory level in relation to what has sold well in the past
  • Reorder from wholesalers before you run out

2. Smarter way to invest money

Retail success requires the right amount of inventory for each product – enough to keep sales going and prevent stock-outs, but not too much that the merchandise just sits on the shelf and increases carrying costs.

The accuracy of inventory reports is important. By identifying slow-moving products, you can mark them down and get rid of them to generate money for new products, marketing, and more.

3. More accurate reporting

Using cost of sale accounting, accuracy of product reports is critical to several financial reports.

With this method, a cost is associated with each sale, which is based on the asset value of the product.

Consequently, your balance sheet, income statement, and cost of sales heavily reliant on accurate cost values.

Techniques for managing inventories

The use of inventory management depends on your knowledge and approach.

A software expert can set up inventory management efficiently and for a very reasonable fee. Working with them ensures that the most bang for your buck is getting the most usage from your efforts.

Check out some of the inventory-control methods you may use in your warehouse.

1. Quantity of orders that are economical.

This formula identifies the ideal amount of inventory a company should buy based on factors such as the total cost of production and demand rate.

To minimize costs associated with EOQ, it is the overall goal. To minimize buying, the formula helps determine how many product units should order. The formula also accounts for the number of units in the delivery and storage costs of inventory. Most companies benefit from this in terms of releasing tied cash from inventories.

2. Quantity limitation.

An average supplier will only sell a minimum amount of set stock (MOQ) per order. Retailers that fail to purchase the MOQ of a product will not be able to purchase it from the supplier.

In contrast, inventory items that are more expensive to make typically have smaller MOQs than cheaper, easier-to-manufacture items.

3. The ABC principle.

According to this inventory categorization technique, subjects divided into three categories to identify items that have a heavy influence on overall inventory costs.

  • Products classified as Category A generate the most overall profit for your company.
  • In Category B, you find products somewhere in the middle.
  • Category C represents small transactions that are vital for overall profit, but individually do not matter much to the company as a whole.

4. Managing inventory just-in-time.

Inventory management just-in-time (JIT) refers to ordering raw materials from suppliers in relationship to production schedules.

Reduced inventory costs are a great benefit of JIT. Instead of ordering too much inventory and risking dead stock, companies order inventory on an as-needed basis. Stock that never sold or used by customers before, taken off the sale shelf is dead stock.

5. Safety stock.

The management of safety stock inventory involves ordering extra inventory above expected demand. As a result of incorrect forecasting or unexpected changes in demand, this technique helps prevent stockouts.

Final Thoughts

Your business can become more efficient with a good inventory management system. By reducing waste, decreasing the time items sit in your warehouse, and predicting future demand, you will be able to reduce costs.

Proper inventory management is critical to your company’s success if you sell physical goods. The amount of money invested in every type of item is great, but even the smallest efficiencies make a big difference.

It is possible to have both worlds if this is tied into cloud accounting software. Effortless stock tracking plus transparent financial reporting will result. You will be able to control everything on-site as well as remotely.

Your business will also have more money for other aspects of operations if you have less unproductive inventory. Your company will benefit from greater cash flow, essential to survival and growth.

Also Read: Guide on How to Calculate expected portfolio return

CEO & Editor
I'm Ved Prakash, Founder & Editor @Newsblare Media, specialised in Business and Finance niches who writes content for reputed publication such as,, Motley Fool Singapore, etc. I'm the contributor of different... news sites that have widened my views on the current happenings in the world.


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