Why is inventory management in the supply chain important?

By Sean Galea-Pace
Clear visibility into transactions that positively impacts the entire process of ordering, storing and using inventory is essential to companies' long-t...

Clear visibility into transactions that positively impacts the entire process of ordering, storing and using inventory is essential to companies' long-term growth.

A prominent inventory is considered a core component of the supply chain and is where all areas of the supply chain come together in tandem. Supply Chain Digital explores why inventory management in supply chain is the key to sustained success.

What is inventory management?

Inventory management is the products or materials a company sells to its customers in order to make profit. As part of the supply chain, inventory management includes several different aspects such as controlling and overseeing purchases from suppliers and customers, maintaining the storage of stock, controlling the amount of product for sale and order fulfillment. There are three core steps of inventory management:

  1. Purchasing inventory - raw materials or components are bought and delivered to the warehouse.

  2. Storing inventory - inventory is stored until needed. Raw materials are moved to production facilities to be made into finished goods and returned to stock areas until ready for shipment. 

  3. Profiting from inventory - the amount of product for sale is controlled. Finished goods are pulled to fulfill orders. Products are shipped to customers.

The banking giants, IBM, believes that inventory can be a company’s most important asset. The company has established five steps to begin a journey of inventory visibility.

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  1. Determine where the inventory exists across your network and systems that are tracking that inventory.
  2. Do you build or buy?
  3. Decide if you are going to update your entire order management system or start with getting an accurate real-time view of your inventory.
  4. Build a business case to justify the investment.
  5. Start assessing different vendors to observe which is the best fit for your needs.

Why is inventory management important?

Fulfillment is at the heart of the customer experience and gets to what really matters. It drives loyalty and ensures customers return to your business. In order to grow, it’s important to keep the promises you make and deliver orders efficiently. It’s vital that companies with complex supply chains and manufacturing processes strike the right balance of inventory size.

For more information on all topics for Procurement, Supply Chain & Logistics - please take a look at the latest edition of Supply Chain Digital magazine.

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