What is inventory management?

Inventory management is at the center of all your trading activities. From buying, selling, and keeping the stock organized; inventory management plays a significant role. Get thorough information and clarity about inventory management from this article.

Inventory management - Zoho Inventory
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Inventory management is a technique of controlling, storing, and keeping track of your inventory items. Inventory management is an essential component of supply chain management, as it regulates all the operations that are involved from the moment an item enters your store until it has been dispatched.

To put it in simple words, inventory management helps you streamlining your operations, organize your resources, and maximize your returns. Read on as we dive deeper into inventory management to find out how it impacts your organization.

Inventory management process flow - Zoho Inventory

How inventory management impacts your organization?

Before we understand how exactly inventory management has an impact on your business, it is essential that we walk through the levels that make up an organization. An organization is made of three levels — structure, process, and system. Each of these levels is necessary for the overall functioning of the organization. The structure determines the crucial elements of the business, the process sets the sequence of steps that need to be undertaken to meet the organization's objectives, and the system aligns the elements with the process and solves organizational problems.

Inventory management works at all these levels. To understand the role of inventory management at each level, let's compare it with the internal functioning of a car.

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Inventory management as a structure

Inventory management forms the structure for an organization like a chassis frame does for a vehicle. The chassis frame is the base of a car. It acts as a platform which interconnects different components like the gear box, engine, wheels, and axles. All of these components are bolted to this frame to hold the car together. The chassis frame keeps the engine secured and the wheels aligned. In the absence of a chassis frame, neither the engine nor the wheels can fulfill their objective.

Similarly, inventory management secures the major components of your organization, like Marketing and Finance. Each of these components has different specific goals. Inventory management keeps marketing goals secured by ensuring the right items are available at the right time, and it keeps your finances aligned by controlling the flow of stock.

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Inventory management as a process

A vehicle is set into motion when certain processes are triggered successfully. When you turn the key to the on mode, the spark plugs connect with the battery and ignition coil, the electric motor cranks up the engine, the power gets supplied to the wheels, and then you are off. This entire process is a series of actions performed by individual units. When one action is completed, the next unit takes up the next step and so on. And all of this happens out of sight — you don't see the inner workings, but you see the results.

For an organization, inventory management sets up the processes that lead to closing a deal or making a sale. Just like in an engine, the process in an organization mostly runs behind the scenes. It usually involves tasks like order management, warehousing, packaging, and shipment. When you receive an order from your customer, order management takes care of preparing a sales order and invoice. After the order confirmation, the warehouse management process will identify the location of the stock and send it to your store. Then, just like the wheels, the packaging and shipment process sets the item in motion. It ensures that the item gets packed, dispatched, and delivered to the customer, on time and safely. Inventory management enables each component in this process to perform its step and contribute to reaching the desired end.

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Inventory management as a system

Imagine you are driving on the highway and you wish to rev up the engine. When you step on the gas, the engine automatically responds and the components automatically match up to carry out the operation. The gears, engine, and wheels all step up to make the change without your intervention. The components themselves create a system, which is a set of rules for how to manage fluctuations or changes. With a system, the parts are able to work as a whole to respond to new conditions.

Inventory management acts like a system for your organization. If your organization grows or changes, your structure and process work together to scale up and adapt. Suppose you set up a store in a new location to expand your sales. Your inventory management acts as a system to guide your organization through responding to the change in conditions. Your marketing, warehouse, and sales teams can all step up to adjust their goals and benchmarks, syncing their efforts through your inventory management strategy. You don't have to start from scratch. The system shows which alterations to the current settings and plans are needed to achieve your objective.

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