Inventory Management: Types & Benefits

Managing Your Inventory - Complete Controller

Each organization requires an inventory to carry out the various activities to achieve its objectives as a successful business. Stock inventory is created when items are in standby mode before they are used or sold. Items can be found in stock at any stage: initially as raw material, then processed, stock, and finally, finished stock.

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Types of Stock Inventory Management

Businesses rely on different types of inventories to conduct their operations. Some of the most common types are:

  • Raw Material Inventory – Materials intended for production. This inventory allows continuous production, and its size is determined by the organization’s cost, production time, and priorities.
  • Work In Process Inventory – Materials in the production line waiting between different workstations. This inventory includes products that are allotted to different processing times of workstations.
  • Finished Goods Inventory – Inventory of finished products intended for sale and awaiting customer delivery.
  • Inventory of Supplementary Materials – Materials that do not directly participate in production but are necessary to complete the process. For example, office supplies, packaging materials, and other products are included in indirect production.

Costs Associated with Inventory Management

The costs associated with inventory management vary depending on the production process and type of finished product. Moreover, the following are the costs associated with inventory management for effective bookkeeping records.

  • Cost of Labor – Includes all costs associated with those responsible for managing inventory. This cost includes salaries and wages paid to warehouse managers, clerks, and inventory holders.
  • Cost of IT – Includes purchasing and maintaining computers and software.
  • Cost of Management – Includes building procedures, approving, and assimilating them into the system. For example, storage procedures, handling procedures, and delivery procedures.

Benefits Derived from Inventory Management

There are several benefits to effective inventory management and proper bookkeeping for the success of a business. Savings on inventory maintenance help optimize costs associated with inventory maintenance. They also include expenses related to repeat orders on other products.

Meeting supply times assists in proper inventory management. It enables the determination of ongoing production and meeting schedules and delivery times. Timely delivery will lead to additional orders and new customers for the business, which indicates that proper inventory management is effective in helping the company succeed.

Another benefit of stock inventory management is the maximum utilization of production factors. Furthermore, proper inventory management will enable continuous production and prevent downtime, delays, and idle time.

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Inventory Management – 3 Main Methods

 LIFO Method – Last in, First Out

This inventory management method is also known as the stack method. The LIFO method determines that the last product in inventory will be the first to be exported. LIFO is an effective method for products with a long shelf life.

FIFO Method – First in, First Out

According to FIFO stock management, the first product entering is the last product leaving the manufacturing facility. However, it considers the product’s shelf life and the validity of the warranty received from the supplier against the product.

JIT – Just in Time

However, this is one of the most common inventory management methods for products with high maintenance costs. According to this method, a company orders products from the manufacturer exactly at the time of purchase. Inventory management according to consumption is the most economical model, but it requires a high level of control and analysis for demand forecasting and delivery time management.

Inventory Management and IT Services

Inventory management software allows a business to track every exit and entry from the inventory of items in the organization’s various warehouses. Additionally, inventory management software is a system module that includes sales and purchasing modules to enable data integration and greater manageability, control, and analysis for maintaining costs associated with inventory management.

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Linking the IT Sector with Warehouse for Effective Management

The warehouse and inventory management software will prove an essential link in the organization’s inventory mechanism. The warehouse ensures proper maintenance of the various materials entering the facility, enables adequate inventory management, and provides good service to the various factory departments. Moreover, inventory management software should enable quantitative inventory management and serial numbers for stock inventory management.

When done efficiently and professionally, warehouse management is one of the most important conditions for successful logistics system management, stock management inventory, and bookkeeping. Both play a decisive role in helping a business succeed. Here are common activities that are carried out in a warehouse:

  • Handling of deliveries from suppliers
  • Inventory counts and complete control of inventory levels
  • Preparation of inventory and supply to various departments through transportation systems
  • Maintenance of physical conditions such as temperature, humidity, and pressure
  • Proximity restrictions for other materials
  • Regular maintenance
  • Receiving finished products from production
  • Receiving orders from customers
  • Preparing shipments to customers

Inventory Management with Serial Numbers

Inventory management according to serial numbers enables tracking transactions of every item and managing responsibility with the supplier and customer. Furthermore, inventory management software allows a company to analyze inventory movements, such as displaying sales of items according to different periods per business needs. The software must provide information on deadstock (unsold inventory) to alert the business of missing items when an item falls below a specified minimum level to reduce costs associated with inventory management.

However, a crucial part of inventory management software should be the ability to manage customer exchanges and returns. The inventory management software provider should be able to perform various actions against any customer return or return to a supplier. For example, withdrawal of the return certificate for monetary credit, replacement of the product, replacement of product X in product Y, and replacement with the withdrawal of liability if the product is under warranty.

How Can Software Help in Stock Inventory Management?

Inventory management assists with business inventory, tracking the entry and exit of items from stock and noting the speed and profitability of each sale. Moreover, the inventory management module contains a price list for each customer. The software can be helpful in the calculation of profit per invoice.

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