For many people, the word inventory only means one thing: lots and lots of counting. Inventory is commonly thought of as the finished goods a company accumulates before selling it to users. Inventory can also include raw materials used to produce finished goods, including goods that go through the production process or goods that are in transit.
In a simple way, inventory is defined as the stock or store of goods. Generally, inventory types can be grouped into three classifications:
- Raw materials
The inventory items that are used in the manufacturer’s conversion process to produce components, subassemblies, or finished products.
- Work in process
It is made up of all the materials, parts (components), assemblies, and subassemblies that are being processed or are waiting to be processed within the system.
- Finished goods
It is a completed part that is ready for a customer’s order. Finished goods inventory is the stock of completed products.
It is important to understand the advantages of inventory management, which means the act of keeping track of a company’s stocked goods by monitoring their weight, dimensions, amounts, and location. The goal of inventory management is to minimize the cost of holding inventory by helping business owners know when it’s time to replenish products or buy more materials to manufacture them.
Inventory management helps to:
- Avoid unnecessary spoilage
- Avoid deadstock (stock that can no longer be sold, but not necessarily because it expired)
- Save on storage costs
The optimal inventory management system is different for each company. Regardless of the system, the following techniques will help to improve the process:
- Set par levels
- First-In-First-Out (FIFO)
The older stock (first-in) gets sold first (first-out), not your newest stock
- Manage relationships
It’s important to have a strong relationship with suppliers. That way they’ll be more willing to work with you to solve problems
- Contingency planning
Figure out where the risks are and have a plan with steps to solve any problem.
To learn more about inventory management on business and industrial facilities or consultation on plant operations and maintenance, contact Vanguard Resources.