Inventory management is a pivotal part of supply chain management that covers tracing and managing the stock of freight used in production and manufacturing. Inventory management mainly aims to place the right goods at the right time and place to fulfill the client’s needs in modern supply chains. This requires visibility, examining when, where, and how much to stock. Supply chain inventory management begins with sourcing and extends to product delivery, affecting the business’s overall functionality and performance. 

In the next section, we will discuss the workings of inventory management and its types, as well as how it contributes to optimizing the modern supply chains. 

What is inventory management?

Inventory management is the process of ordering, storing, utilizing, and selling a company’s stock. This stock consists of raw materials, constituents, final products, and warehousing and processing of the items. The following processes are essential in managing the inventory levels for efficient logistics and supply chains: 

1. Ordering is placing orders to buy new inventory. 
2. Storing consists of keeping the inventories in warehouses or other storage rooms.
3. Tracking means tracing the real-time location of the inventories. 
4. Shipping ensures that the stock is delivered to the right clients at the right place and at the right time. 
5. Selling covers the sale of the inventory to the customers. 
6. Restocking is replenishing the inventory when needed. 

Benefits of inventory management

Accurate inventory management is essential for a successful business. Regular tracing of goods results in better supply chain solutions. The following are the benefits of inventory management in modern supply chains : 

1. Better inventory accuracy: If you follow accurate inventory management, you will know the stock quantity you need to meet the demand. You will also easily get answers to how much you need to replenish and sell through this real-time inventory analysis. 
2. Cost efficiency: Stock needs money before it is sold to clients. Shifting the stocks requires costs for storage, handling, container transportation fees, workforce salaries, and insurance premiums. Unfortunately, inventory is at risk of being stolen, destroyed by natural disasters, or made obsolete. Yet, stock management systems assist in overcoming all the challenges by providing efficient storage and transportation. 
3. Decreased risk of overselling: The inventory system assists in tracing the recent orders and the quantity required to fulfill the remaining orders. This prevents you from overselling products and keeps a stock for backorders. 
4. Prevent stockouts and excess stocks: A more accurate inventory control system and planning prevent stockouts and excessive stocks. The correct analysis will determine the exact quantity needed to fulfill present, past, and future orders. 
5. Increased productivity: Effective strategies for inventory tracking management will optimize your operations’ productivity, saving time and providing time for other functions. Therefore, they enhance the production and distribution processes to optimize modern supply chains. 
6. Warehouse organization: An effective warehouse is a storage room with products listed according to demand. These items are frequently sold together, lowering the labor expense and increasing the speed of fulfilling the orders. 
7. Enhances cash flow: Stock management enhances cash flow by allowing continuous money movement through the business. Warehouses store products that are intended for sale and purchase.
8. Customer satisfaction: This inventory system helps satisfy customers by ensuring they receive products on time. Improved customer service results help generate more loyal customers. 

Different types of inventory management

Three inventory management systems meet your needs and requirements; every type has benefits and features for modern supply chains. Let’s have a brief look at these types: 

1. Periodic inventory management: This process involves an inventory evaluation system for financial reporting, where stocks are physically counted at regular intervals. This method takes inventory at the beginning, extends to new inventory during a particular period, and subtracts the remaining inventory, resulting in a cost of goods sold (COGS). 
2. RFID inventory management: As the name suggests, a Radio Frequency Identification (RFID) inventory control system that transfers product data wirelessly and assigns a unique serial number. It traces the items and their real-time location. There is also a warehouse inventory management system based on RFID, which enhances efficiency and ensures secure data about the product receiving and delivery through shipping containers. 
3. Barcode inventory management: These stock management systems assign serial numbers to the products they want to sell. You can easily relate the numbers to information such as supplier, product size, weight, quantity, and even variable data. 

Challenges of inventory management

Inventory management is very beneficial for businesses, allowing them to keep up with customer demand without wasting stock. Yet, it has some disadvantages that you must know about. Here are the disadvantages of inventory management in supply chain systems: 

Inefficient processes: Poor functioning due to manual or outdated operations can slow the process and create errors. This can ultimately result in the disruption of modern supply chains and inventory waste. 

Fluctuating customer demand: Customer behavior evolves with time due to external factors. Therefore, it is imperative to trace shipping and logistics trends and customer preferences, but sometimes, the system cannot perform properly due to fluctuating customer demand. 

Data breaches: The systems used for inventory management are prone to security breaches and data hacks. This is the major logistics challenge faced while managing inventory software. 

Expensive for small businesses: Investing in a full-fledged inventory management system can be expensive for newly started small businesses.

Lack of access to accurate stock: Without an accurate quantity of stock, you won’t be able to make correct decisions about which stock to refill or which to resell in what quantity. 

What is the importance of inventory in supply chain management? 

The importance of inventory management in modern supply chains cannot be denied. It starts long before the products are stored in the warehouse. Let’s explore the importance of inventory in supply chain logistics: 

1. Warehouse management: It is the most crucial part of inventory management, where goods are stored and distributed, and orders are fulfilled for the clients. To ensure fast delivery and smooth fulfillment operations, you must locate the warehouses at the correct locations. This will lead to customer satisfaction. However, effective warehouse management reduces the loss from theft or damage. 
2. Optimization of inventory: Inventory optimization means balancing the stock and preventing overstock and understock. For an efficient system, you need transparency from raw materials to the sales data. Therefore, supply chain managers regularly calculate inventory levels to meet customer demand through supply chain analytics. 
3. Transportation management: Inventory and transportation are interlinked from the factory to the warehouse and distribution center. Certainly, proactive, on-time, and efficient transportation is pivotal for a structured global supply chain. 

How can inventory management in modern supply chains be optimized?

You need to follow some techniques for managing inventory in modern supply chains. With the efficient performance of these techniques, you can increase customer satisfaction and reduce costs. The following are the techniques for supply chain management systems: 

1. Demand forecasting: One of the leading practices to adopt for inventory control is demand forecasting. Practical and precise demand prediction can be performed by analyzing the trends and data, which can help you assume future demand and customer behavior. This inventory control system ensures that you have fulfilled the customer demand without the problem of overstocking or understocking. 
2. Effective IoT tracking: This consists of tracing the product’s real-time data in the supply chain using the serial numbers assigned. You can also use IoT inventory tracking software to keep track of purchase orders with the suppliers. 
3. Demand-Supply Integration (DSI): This leadership approach helps shipping container companies make supply-and-demand decisions to optimize inventory investments and customer service for the company’s overall benefit. DSI helps companies make well-coordinated decisions aligned with their business plan and initiate supply chain integration. 
4. Economic order quantity (EOQ): It is a formula to find the correct amount of inventory to order that will balance the expenses of managing the stock and meeting customer demand to optimize the costs of supply chain operations. You need the following data to calculate the EOQ: 

• The demand rate defines the quantity of the product sold in the past year, month, or quarter. 
• The price of the products you need to order. 
• Lastly, the costs of holding the stock are known as holding costs. 

5. Just-In-Time-Management (JIT): This system originated in Japan to reduce costs and waste by keeping the inventory that you have to sell or produce within a particular time period. However, the future of supply chain systems will decrease insurance and storage costs and reduce the need to discard excess stock. 

Inventory management in modern supply chains is essential to align the operations from the initial container depot to the final destination. The inventory management process covers managing stocks so that you won’t have to face the problem of overstocking or understocking. Understanding its different types, benefits, and challenges will help you analyze how to initiate it in your operations. You can implement some methods in your modern supply chain strategies, like effective IoT tracking, demand forecasting, and just-in-time management. 

LOTUS Containers offers warehousing services to store inventory for logistics optimization. As logistics providers, we provide specialized container types and logistic services and help manage inventory levels according to customer demand.