Inventory Management and its importance

Inventory management is basically the forecast and control of the number of items a company needs to stock. The management of this stock is cyclic in nature. This means that mismanagement of stock at any of the layers of supply chain can have snow ball effect on the other layers. For example, if the stock of the raw materials is depleted beyond requirement, the number of products manufactured would reduce affecting the number of products delivered to the stores that sell the product to the customer. Thus, it is imperative that there are resources at each layer of supply chain that forecasts and determines the number of stock required at that level and informs the other layer if there are any excess or fewer amounts of items.

Inventory management is a very critical task because the exact amount of items should be present. Less number of products leads to miss-management in operations and thus poor customer service.  Maintaining an excess of products in the stores for a long time has even more adverse effect on profitability because cost rises linearly with the number of excess items and the number of days in excess for which the item is maintained.

It is also very interesting that inventory management techniques can affect different industries in different ways. For instance, excess of products in the food industry can cause more damage than excess of products in the fashion industry. This is because if the products in the clothing line go out of fashion, the clothes might be recycled and reused to make other products but in expired food products cannot be re-used to make new products. Thus industries whose products have an expiry date such as pharmaceuticals or packaged food should be even more careful about inventory management.

There are many methods or policies that can manage inventory effectively. Products can be replenished just-in-time meaning that we do not maintain an excess amount of inventory at any point of time. Or the products can be replenished some time before the product is actually depleted from the store. Although, just-in-time replenishment is the most effective way of inventory management, it is actually difficult because it requires major planning and implementation. Therefore, there is always a trade-off between the planning required for maintaining some products in exact amounts and cost of inventory management in maintaining a product for excess amounts.

As is other phases of supply chain management, Technology can contribute a lot to efficient inventory management. One of the most innovative uses of technology in the supply chain is the innovative use of bar codes. Bar codes are generally used in maintaining the number of counts of the products flowing in and out of an industry or store. Bar codes are imprinted on products using RFID technology and they are also read by RFID readers. This ensures that there is minimum manual intervention in the supply chain process.

Thus, inventory management is a very important aspect of supply chain. Effective inventory management reduces costs and in turn increases business growth.

Questions:

1     Other than Bar codes what other technology can be used for Supply chain management?

       Do inventory management techniques apply to services industries such as software firms or hospitals?