Inventory management is the way you manage and control the products you sell, buy and store in your business – as well as all the components you use to make products.

For any business that sells physical products, it is extremely important to have good inventory management – and that depends on how much those products cost.

00:00 What is inventory management?
01:10 What is the difference between inventory and stock?
01:39 Different types of inventory
02:01 Safety stock and stock outages
03:07 What is a reorder point?
04:07 What is an inventory management system?
04:53 What should an inventory management system do?
06:00 Modern inventory management software

Because your business's biggest expense is probably your physical inventory. And that's not just the cost of acquisition, but also storage costs, things like transportation and insurance, and the risk of goods spoiling.

Warehouse waste is a major problem, especially in inventory management.

If you deal in perishable goods – like food and beverages – or simply products that have a limited shelf life or go out of style – like medicines, cosmetics, toys or clothing – you need to be extra focused when it comes to inventory management. Otherwise, you'll end up spending money on goods you never sell.

Ultimately, no matter the size of your business or the products you trade, if you manage your inventory well, keep your stock levels low and avoid waste, you can free up cash flow that you can use for other parts of your business and operate much more profitably.

What is the difference between #inventory and stock?

When learning inventory management, there are a few terms to remember:

Stock means actual finished goods that you sell, while inventory includes everything – your finished goods plus the components or ingredients you might use to make them. This includes things like packaging – as well as what's called MRO (maintenance, repair and operations inventory): that's the goods that keep your business running – things like machine parts and cleaning products.

Different types of inventory

Other types of inventory to understand are

Raw materials – If you are a manufacturer, these are the things you use to produce your finished goods

Work in progress inventory: All inventory that is in the middle of the manufacturing process

And probably the most important type of inventory you should get under control: #SafetyStock

Safety stock and stock outages

Safety stock is essentially your buffer. It's the inventory you keep on hand to avoid what's known as a "stock out." That's when you run out of something you want to sell—or something you need to make a finished product.

Out-of-stocks are bad because they cause delays. And delays really hurt your customer relationships—and can even cost you a sale. Especially in e-commerce, customers often switch to the competition if they don't get what they want right away.

For manufacturers, however, inventory outages are even worse because an unplanned inventory outage can result in all production having to be stopped until new parts or ingredients can be obtained.

Imagine a factory where the workers suddenly have nothing to do, but you still have to pay them. Or a brewery that runs out of bottles just when lager needs to come out of the barrels.

Good inventory management means not running out of stock.

But it ALSO means not having too much inventory. Because as we mentioned earlier, that ties up too much money – and can lead to waste.

It's a real balancing act – and setting the right safety stock levels is one way to achieve that balance.

Another option is to use reorder points.

What is a #reorderpoint?

A reorder point is simply the point at which you need to purchase more inventory.

Let's say you set a reorder point of 150 for a line of cell phones you sell. Once your inventory drops to 150, you'll need to buy more to avoid running out.

Each stock item has a different reorder point. To determine this, three things must be taken into account:

How many copies of each item do you sell per day?

#InventoryManagement

How many days does it take for new goods to arrive after you order them?

And how high the safety buffer is that you have set

As you can see, a fast-selling item that comes from far away – and takes a long time to arrive after being ordered – needs a high reorder point

On the other hand, for an item with a slow sales process that can arrive in just a few days, the reorder value is much lower.

For more information on #inventorymanagement and #warehousemanagement techniques, check out our free inventory management guide: https://www.unleashedsoftware.com/inventory-management-guide
For more information about Unleashed, visit http://www.unleashedsoftware.com
Or check out detailed free demos of Unleashed here: https://www.unleashedsoftware.com/inventory-management-software-demo

Please take the opportunity to connect with your friends and family and share this video with them if you find it useful.