Inventory management is a problem faced by many companies. Good inventory management is essential to a company’s long-term viability, as it has a non-negligible impact on cash flow. However, inventory management is not always easy to implement, especially when it comes to choosing the right method.

What is inventory management?

Inventory management is the set of measures a company uses to know how much to order and when, with a view to achieving a balance between low storage costs and high customer response capacity. Stock management: the challenges of inventory management: A company must do everything in its power to prevent its inventories from doing it a disservice, which is why it is so important to choose the right approach. So how can you improve your inventory management? Before discussing the various options available to the manager, it’s essential to take a brief look at the issues involved in stock management: no two companies will necessarily face identical problems, and therefore won’t implement the same stock management methods.

This video can explain it more:

Avoiding overstocking

The first notable consequence of this state of affairs is an increase in fixed and variable costs, since too much dormant product is detrimental to a company’s financial health. For example, the cost of building or renting additional storage space. Secondly, the number of staff required is also increased. Insurance costs will also rise.

Another point to consider is the immobilization of capital. When a company buys products in order to stock them, it ties up money, which does not pay off until sales take place. To the extent that this capital could have been invested in more profitable projects, it represents a loss of opportunity for the company.

Replenishment to order

This is the most flexible technique, but also the most difficult to master. Here, the inventory manager orders variable quantities on variable dates. This method of inventory management is suitable for certain special cases, such as projects with a defined duration, where the order is placed in one go before the start of the project, for example the construction industry uses this method for a building project in certain cases. It’s also an interesting option for companies needing to order expensive and/or scarce merchandise if they can’t really determine when their stock will be sold out, or the quantities they’ll need.

Advantages: For merchandise that is not ordered on a recurring basis, this is a good method: it avoids unnecessary capital investment. As mentioned above, if the company has little or no visibility over its order frequency or the quantity it will need in the short term, this may be the best option to select.