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What is Inventory Management?

Inventory Management: It is a management of required inventory level in a company. To maintain enough stock of raw material and finished goods in a company helps to reduce the chances of shortage of stocks or excess stock in a company. If there is a shortage of stock, then the company is not able to satisfy its customer needs which leads decreases the sales volume and loses its customers because the customers will go some other places to fulfil their needs. If there is an excess stock then it leads wastage of company’s funds because that stock will not be converted into cash.

Types of inventory:
·         Raw material: It is an unprocessed item which is going for processing and converted into finished goods.
·         Work-in-progress: The raw material is under processed stage that is known as work in progress.
·         Finished goods: The goods are available or ready for sale to customers to fulfil their needs.
       
      Company also maintain some stock of spare parts like nuts, bolts. And it also maintains the stock of packaging items or some other items which help to prepare the finished goods.

Importance of inventory management:
·         It protects the company from the stage of losing its customers due to lack of stocks.
·         It helps to maintain the sales volume of a product.
·         It reduces the time gap between ordering the goods and delivering to customers.
·         It helps to maintain the reputation of the company.
·         It reduces the wastage of funds by holding extra stock in a warehouse which is not going to convert into cash.
·         It helps to maintain continuous flow of goods for every stage, when raw material is converted into finished goods.

Types of Inventory Cost:

·         Ordering cost: The cost associated with the ordering of a stock from supplier. If lesser the quantity ordered higher the ordering cost and higher the quantity ordered lesser the ordering cost.

·         Carrying cost: This cost is associated with the time of holding of a stock in an inventory till it converted into sales. Increases the ordering quantity increases the carrying cost or decreases the ordering quantity decreases the carrying cost.

·         Other Cost: It is directly or indirectly related to stock like insurance cost; to protect the stock from theft, fire etc during holding period of stock in warehouse. Warehouse cost for maintaining the stock in warehouse etc.

Below the diagram shows how the carrying cost and ordering cost are related to each other:


The diagram shows the inverse relationship between ordering cost and carrying cost.

Inventory Management System: It is a system based management of inventory level of a company. With the help of computer software company manages all its inventories activities like ordering the stock, maintain the warehouse record, checking the inventory level time to time, and update every record related to stock when sales or purchases happened and it is also used for billing purpose etc. The software used for inventory management is:

ERP (Enterprise Resource Planning): This software is use by manufacturers for maintaining multi warehousing easily. It also helps control the inventory level.
Now there is lots of software are available for inventory management.


                                                                                                                                           

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