What is Inventory Management?
Inventory management is the process of ordering, storing, using, and selling a company's inventory. This includes the management of raw materials, components, and finished products, as well as warehousing and processing such items.
Not to be confused with "Stocks"
Unlike stock market trading which deals with equity in companies, inventory management is strictly about the physical (or digital) goods a business sells.
Why is it Critical for Business?
Inefficient inventory management can lead to two major disasters:
- Dead Stock: Capital tied up in unsellable goods.
- Stockouts: Lost sales and disappointed customers because you ran out of product.
Key Terminology
SKU (Stock Keeping Unit)
A unique code used to identify each distinct product or service for sale.
WMS (Warehouse Management System)
Software designed to optimize warehouse functionality and distribution center management.
Reorder Point
The specific level of stock at which your software automatically flags that it's time to order more.
Lead Time
The time between placing an order with a supplier and the goods actually arriving.
Common Methods
There are several methods businesses use to value and manage stock:
- FIFOFirst-In, First-Out: Selling the oldest inventory first. Critical for perishables.
- LIFOLast-In, First-Out: Selling the newest inventory first. (Less common, used for specific accounting reasons).
- JITJust-In-Time: Minimizing stock by ordering goods only as they are needed for production.
The Role of Software
Spreadsheets are fine for a hobby, but growing businesses need dynamic tools. Modern software like Grinstock automates the heavy lifting:
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