How To Understand Inventory?

How To Understand Inventory?

As David Kiger has previously asserted, inventory can certainly be described as all the materials or goods that either pass through or are kept in a business and are required for that specific business to carry out its activities. Besides, inventory is perhaps one of the most hard-to-properly-understand topics within the logistics spectrum, which is why it is not rare to see supply chain managers and even some logistics experts wondering: how to properly manage inventory?

How to manage inventory

Inventory management are all those activities involved in making sure the inventory of a company works for its business as cost-effectively as possible. In that sense, there are several aspects to consider when exploring inventory management. The first aspect is commonly referred to as planning: companies often use several metrics and strategies to foresee the amount of stock they are going to hold, where they are going to hold it, and, most importantly, for how long they are planning on holding it. Besides, firms have to pay special attention to any special needs that may arise regarding such prediction: does the stock require a special treatment? Does it need to be kept under special circumstances?

Companies may also need to come up with ways to preserve the stock. For instance, often times, companies need to monitor specific items on a regular bases. The other aspects of inventory management are often related with the assessing and regulating activities of the stock. Assessing inventory often means keeping track of the stock, either by counting it or checking it in some way. Regulating inventory means establishing the right amount to be kept, thereby making sure the company is not holding extra or, perhaps, too little. Regulating is also a way to to prevent stock from being stolen or damaged.

Losing inventory: an ongoing threat

When it comes to keeping inventory from being stolen or lost, it is practically obvious to assert that it is quite easy when items are held in a warehouse. However, if companies do not know where things start to go sideways. The bigger the facility, the more important it is for companies to keep an eye on where exactly are they keeping their stock. Inventory management is all about defining a set of processes for the proper treatment of those goods in order to avoid falling victim of not knowing their exact location.

Keep an eye on the different types of inventory

As mentioned in previous articles, there are, at least, two different types of inventory: direct inventory and indirect inventory. However, it is also important to mention that inventory management can definitely be more simple and even friendly when taking a much closer look at the different stages inventory goes all across the supply chain. Thus, businesses prefer to refer to stock as types.

Raw Materials: Also known as the ingredients or components from which a business produces its end-consumer products.

Work in Progress: Also known as any stock in the process of being turned into another thing; the process of transforming from raw materials into end-consumer products.

Finished Goods: This is the stock that is ready to be sold to end-consumers.

There are also other types of inventory:

Service Inventory: consists of spare parts and other tools used during the sales process.

In-Transit Inventory: Also known as the inventory being transported from one location to another by rail, road, sea or air.

How to approach inventory management?

The aforementioned categories and the categories of stock that firms hold are often determined by the very nature of their businesses and all the activities they need to carry out in order to run the business as well. That means that companies, in order to properly approach inventory management, need to assign different priorities in accordance with the different types of stock.

Depending on the nature of the business, firms need to define priorities around the amount of stock they need to hold. For instance, if a restaurant or a bar that sells beer and hamburgers were to establish stock priorities, its top inventory would likely be beer, for running out of hamburgers would be bad, but running out of beer would be no less than catastrophic.

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Companies can classify their inventory by categories: top priority, and the other ones. The first stock management premise or principle to be taken into account is to not run out of those essential goods and items that sell good and well and basically fuel the business and keep the firm going and thriving. The other principle is to foresee and be prepared for some times, inevitable: running out of those items that do not sell as good as the one mentioned above, or of those that are to some extent non-critical to the firm. In short, and simply put, companies, prior to recklessly establishing metrics and labels on their stock and logistic activities need to differentiate the items in their inventory, thereby treating the well sellers in one way, and the non-critical in another way. This will also determine a larger part of the business’s approach to logistics.

* Featured Image courtesy of Pixabay at

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