7 Important Objectives of Inventory Management System
Table of Contents
Before Discussing 10 Important Objectives of Inventory Management First, let’s begin by defining what we mean by “inventory management.”
Inventory management is a method of organising, storing, and utilising inventories. Raw materials, components, and completed goods are stockpiled in your business, together with the storage and processing of these things.
A key step in monitoring the supply of goods is inventory management. It’s good for businesses since it helps them be more lucrative because the premise is to keep operating expenses low. You will learn about the mission of inventory management in detail in this post.
A high place in the structure of working capital is held by inventory management. The aggregate of all operations related to acquiring, storing, disposing, or using inventory may be referred to as inventory management. Inventory is a current asset.
A significant component of working capital management, which is an essential part of the overall business operations, is inventory management. Larger inventories need a substantial investment of money to keep them maintained. It is essential to an effective and efficient inventory management strategy to avoid making needless investments and to make sure that the investments you do make are sufficiently used.
Objectives of Inventory Management System
Operational and financial goals may be examined in regards to inventory management. The operational goal is to have an adequate supply of inventory, so that we can fulfil customer demand and the financial objective is to minimise unnecessary inventory and its associated expenses.
For these operational tasks, inventory management is done to help streamline operations. Some of the most important purposes for which it is used are:
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1. Material Availability
The primary goal of inventory management is to ensure that all kinds of materials are accessible whenever the production department needs them, ensuring that production is not stopped or slowed down due to a lack of resources.
It is thus prudent to maintain a buffer stock of all critical goods in order to keep production on track.
2. Better Level of Customer Service
It is impossible to fulfil a received order if you do not have an accurate count of the items in your possession. In order to meet requests, you must have accessible the appropriate goods at the right time. Otherwise, you may end yourself in a state of confusion.
To fulfill the needs for quality products, the concern must maintain an adequate supply of completed items to guarantee that customers’ orders are fulfilled. It will increase the company’s brand image.
3. Keeping Wastage and Losses to a Minimum
Inventory management is very successful in mitigating losses. When there is no monitoring system in place, it is very normal for an item to be squandered or misplaced.
Furthermore, theft is always a danger worth addressing regardless of the kind of job performed.
Keeping track of the goods reduces the likelihood of loss, if not completely eliminates it. Having a document in hand helps avoid waste and protects your business from theft. Such dangers are magnified even more when large quantities of goods must be handled.
Inventory management attempts to minimise inventory waste at all stages, such as during storage in godowns or during production in the plant.
Normal or uncontrolled waste should not be allowed to exceed a permissible level, whereas abnormal and unmanageable wastage should be carefully regulated.
4. Maintaining Sufficient Stock
Supplies should be easily available for all stages of production, from raw materials to completed goods. You need to make sure you have enough of the necessary material on hand to meet client demand without having to cut corners.
The manufacturing department no longer has to be concerned about running out of raw materials or products because of the steady supply.
5. Cost-Effective Storage
It eliminates the possibility of keeping extra stock, since the needs are predetermined, thus eliminating needless storage expenses.
6. Cost Value of Inventories Can Be Reduced
When purchasing products or stock on a regular basis, an organisation may negotiate discounts and other incentives to lower the overall cost.
7. Optimizing Product Sales
Additionally, inventory management may be used to determine the volume of product sales. Sales is one of the most essential and crucial phases of the whole process. Understanding the present condition as well as making future assumptions from the analysis are two key elements in making a successful prediction. You can identify things that move at a slower rate, and remove them.
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Objectives of Inventory Management System Objectives of Inventory Management System Objectives of Inventory Management System