Management what is inventory? Processes, methods & tools for business optimization

In all manufacturing enterprises, trade or retail inventory always occupy a large proportion in liquid assets. However, many businesses still managed inventory a way of feeling leads to the condition of goods stagnant, losses or vice versa is a deficiency, interruption of production leads to lost business opportunities.

In the context of operating costs increasing while the market demand fluctuates constantly, inventory management no longer is the task single of parts warehouse, which become strategic elements in the value chain business.

This article Lac Viet Computing will help you understand the management of inventory, what is the reason why businesses need to optimize this operation, along with the method/tool to manage inventory effectively, especially the modern solutions technology applications such as LV Financial AI Agent to help in controlling and analyzing inventory real time.

1. Management what is inventory?

Inventory management is the process of monitoring, control and optimize the entire activities related to the import, export, – storage of goods in the business. The main objective is to ensure the number of inventory at the right level – enough to serve the needs of sales or production, but no excess waste.

To visualize simple management, inventory like you “keep the refrigerator always just enough food” – not teen but not to excess, causing broken. In business, this is through keeping track of inventory for each item, control the time of ordering, specify the long planning additional shipment handling slow-moving.

The core objective of inventory management include:

• Balance between market demand and internal resources;
• Optimize the cost of warehousing operation;
• Minimize false data inventory;
• Support financial decisions, based on real data.

A business, although have good products to now, but if not, better control inventory, easy to fall into the shortage of raw materials, excess merchandise, even wasting asset due to expired, obsolete or damaged. Inventory management efficiency to help businesses:

• Proactive production planning – business;
• Minimize the costs of storage, loss of goods;
• Limiting losses due to deviations between the books/practice;
• Increase speed to meet orders, enhancing customer experience.

2. The main components in the management system, inventory

A system of inventory management efficient't just stop at the recorded number of goods that need to be built from the basic components to ensure data is accurate, easy to control and has the ability to expand. Below is the structure of the core part that businesses need to pay attention:

2.1 The category of goods – products

This is the foundation of the entire system. The list of goods should be built in a scientific way, clear, according to the industry group, product type, function, use, or parts manager.

For example: A business is manufacture of electrical equipment can be divided into groups of finished products, electronic components, raw materials... The construction of the category of good help to easily manage, search, general report import inventory quickly.

2.2 coding classification inventory

Each item should have separate code, not a duplicate – help the system avoid entering the wrong information, at the same time serve the process of research – report. Code can be placed by convention: type of products – sort – order number (EXAMPLE: VL-KIMLOAI-001).

The classification of inventory also support business track inventory by area inventory status, order (new, pending, damaged, return it...), from which good control of flow of goods.

2.3 norms inventory-minimum – maximum

Each product should be set inventory levels, minimum (in order to ensure uninterrupted production – sales) and the maximum (to avoid goods being stagnant, costs of storage).

For example: product A is often consume 100 units/month → can set inventory minimum of 150 units and a maximum of 300 units. When the near touch the minimum threshold, the system will automatically alert.

2.4 Management input – output – inventory in real time

This is the core functionality to help businesses accurately capture:

• When you have goods import/export?
• Income from suppliers, for any parts?
• The number of values current inventory is, how much?

The management in real-time helps to reduce errors due to manipulation craft, at the same time support department purchases and financial decisions faster.

2.5 Warning inventory control long, the slow rotation

Inventory long day not only occupy an area of the warehouse, but also the potential risk of devaluation, outdated or damaged. A good management system will function automatically alerts the code:

• Without incurring import – export within 3, 6 or 12 months;
• Has the rate of rotation is low;
• Valuable existed but is no longer in demand consumption.

Thanks to that, the business can make decisions processor: discount, promotion, return or stop production – import bank.

3. The method of inventory management efficient today

In the context of competition increasing, the selection of the right method of inventory management not only helps business reduce costs of storage, limiting the losses but also improve operational efficiency, the ability to meet the market. Below are the popular method is widely applied in many businesses.

3.1 Methods of FIFO, LIFO, JIT – briefly Explain, easy to understand

• FIFO (First In – First Out): imports ago is ago. In accordance with industry are perishable goods or degradation such as food, pharmaceutical, cosmetics.
  → Benefits: Reduce the risk goods expire, ensuring quality when delivered to customers.
• LIFO (Last In – First Out): enter the following are prerendered. Often used in the environment of price fluctuations, or product doesn't distinguish in batches.
  → Benefits: can reflect the cost of the most recent market prices in the financial statements, in accordance with the manufacturing enterprise.
• JIT (Just In Time): enter Only when need production, when there is. System requirements correct management, supply chain stability.
  → Benefits: minimize inventory, save storage costs, increase rotation goods.

3.2 ABC analysis – Focus on the group of a key

ABC method divides inventory into 3 groups based on values contribute to the total revenue or profit:

• Group A: 20% of the volume but accounts for about 70-80% of the value of inventory. Need to manage, update inventory regularly.
• Group B: Accounting for 30% amount, approximately 15-25% of the value.
• Group C: 50% of the volume but accounted for only 5-10% of the value.

→ Benefits: optimal resource management by focusing on products that have great influence on financial performance, avoid spreading resources unnecessarily.

3.3 Apply financial ratios: Inventory Turnover, DSI

• Inventory Turnover (inventory turnover) = cost of goods sold / inventory average
  → Only the higher the number, proof of goods to be consumed fast, high efficiency.
• DSI (Days Sales of Inventory) = (inventory average / cost of sales) × 365
  → Only the lower the number the business, the less tie up funds in inventory.

→ Benefits: to Help businesses evaluate the effectiveness and inventory management over time, since then adjust the plan purchase – production compliance, reduce risk, excess inventory.

3.4 inventory periodically combines data software

Perform warehouse inventory periodic (month, quarter, year) in order to collate real-world data with the data system. When combined with warehouse management software (for example: the software can integrate with LV Financial AI Agent), businesses can:

• Automatic alerts arbitrage inventory.
• Analyze the causes shrinkage.
• Proposed adjustment of import – export logical.

→ Benefits: enhance transparency in governance, limiting fraud losses goods.

4. Process of inventory management efficient in business

Inventory management is an important link in the chain operated business, directly affect the cost, the ability to meet orders and financial performance. A process, inventory management, it not only helps businesses get top quality out there, but also supports the correct decision on import – export – goods store.

Step 1. Planning, demand forecasting

This is the first step play a background role. Forecast the demand for the commodity must be based on the realistic elements such as:

• Sales data of the previous period
• Consumer trends according to seasons
• Marketing campaigns are deployed
• Inventory levels, minimum required to maintain (safety stock)

If the forecast is not accurate, the business may fall into shortage of goods caused a loss menu or inventory too much, wasting storage costs.

For example, A business selling drinks need to forecast increased demand in summer. If the prediction is correct, they can actively put material goods soon with the best price, limit buy folding at high prices.

Step 2. Purchase warehousing

Once you have identified the number of required purchased parts purchase will execute order process:

• Selection of suitable suppliers (price – quality – delivery time)
• Order tracking delivery schedule
• When receiving goods, parts warehouse need tally – for projectors – assess the quality of the goods before to enter into the system

Good management stitching warehousing help ensure information accuracy, avoid errors extends to the following steps.

Step 3. Preserved arrange warehouse science

Stock should not be where the “keep temporary”, which is where managed assets have value. The sort of goods should be based on:

• Type of goods: raw materials, semi-finished products, finished products
• Physical properties: fragile, perishable, need temperature conditions...
• Degree rotation: stores selling should be placed near the door to convenient cumshot

In addition, it should use the method of inventory management efficiency, such as:

• FIFO (First In First Out): export in order to enter
• FEFO (First Expired First Out): priority shipment has a shelf life soon

This helps to avoid wastage due to delinquent or damaged, especially with the industry of food products, pharmaceutical products.

Step 4. Export warehouse according to production orders or sales orders

Every activity warehousing need to have stock from clear and be updated on the system to avoid false inventory.

• Production: production of materials according to the level of each order
• Sales: export to-order approved

The recognition of the right time will help businesses track the value of goods consumed, support calculate the price of capital, real profits.

Step 5. Inventory periodically

Even though there was system software, but the actual inventory is still very necessary to:

• Determine the difference between books and reality
• Detection of loss, damage, error operation
• Check compliance with the import – export – storage

Businesses can choose inventory periodic monthly, quarterly, or according to each storage area. The inventory should be carried out plan, have record, the person responsible.

Step 6. Analyze inventory report

The final step in the process of inventory management, but strategic. After obtaining accurate data, business needs analysis:

• Inventory turnover ratio (as high as possible – present rate of consumption, fast)
• The rate of inventory compared to revenue (helps control inventory costs reasonable)
• The number of days of inventory average (said goods and how long does it take to sell)

5. The real state enterprises often encounter in inventory management

Inventory management not only is the recorded number of goods import/export. In fact, many businesses – especially the small and medium enterprises are experiencing no less risky obstacles that keep operating costs, increase efficiency business decline. Here are the typical problems:

• Data entry discrepancies, lack of updates

Data entry craft that can easily occur flaws – from typo, wrong number, to enter the wrong code. When the data is not updated timely, business will not be accurate view of inventory fact, led to the decision to purchase unsubstantiated.

• Lack of transparency between accounting and real storehouse

Real storehouse and bookkeeping often don't match without the data connection. Comparing the difference inventory between the accounting – parts warehouse typically takes time and potential risks of false financial data. Consequences: Easily lead to false reports, affecting evaluate the effectiveness of business operations.

• Uncontrolled inventory excess or deficiency

The no-warning system inventory minimum or maximum that business or buy the excess, causing stagnant capital, or the purchase is missing, causing production disruptions – business. Special goods have limited use, inventory also lead to damaged, waste.

• Take time and cost when handling flaws inventory

When errors are detected, the enterprise must stop many activities to inventory the entire goods, leading to waste of personnel, time and cost of processing. The delay in processing inventory also directly affect credibility with customers and partners.

6. Application of technology in inventory management modern

Instead of depending solely on manual processes, today many businesses have begun to apply technology to manage inventory accuracy, more cost savings.

6.1 inventory Management in Excel

Advantages:

• Easy to use, suitable with small business.
• No cost software deployment complexity.
• Can set up the sample tables, export – import – survival simple.

Limit:

• Data vulnerable to edit/delete it manually.
• No warning of inventory exceeds the threshold.
• Can't link with the system of sales, accounting and production.

→ Excel match beginning stages but not strong enough to follow the business is scaling.

6.2 inventory Management software, ERP, accounting

Using specialized software such as accounting software, ERP or warehouse management help:

• Closely connected between the inventory – sales – accounting.
• Recorded data in real time.
• Automatically set inventory report details according to the item group, and each location storage.
• Minimize errors due to manual action.

→ Benefits: Increase accuracy, save personnel and support rapid decision-making.

6.3 Solution integrates AI – automated analysis give a warning

A current trend is the integration of AI (artificial intelligence) to inventory management to handle big data, make decisions faster, more efficient.

Solution LV Financial AI Agent – integrated into the software, financial management and inventory of the business – support:

• Volatility analysis inventory in real time.
• Give early warning when the amount of inventory exceeds or lower security level.
• Hint adjusted purchase plan – production based on sales data, cycle, seasonality, inventory old.
• Automatic synthesis report inventory as required by accounting, and business leaders.

Inventory management is no longer pure work of the logistics department, which is a core part of strategy to operate effectively optimize cash flow of the business. When the data inventory is managed accurately, continuous updates, tap the right way, the business will be in control costs, avoid risks deficiency or excess goods at the same time quicker response to market demand.

In the context of competition is increasingly fierce, the application of support tools such as warehouse management software is great, especially the solution can integrate artificial intelligence as LV Financial AI Agent will help businesses not only good management of inventory, but also create competitive advantages in the long term.