Inventory Management System

Inventory management could as be defined as managing inventory with the primary objective been determining and controlling stock levels within the facility to balance the need for product availability against the need for minimizing stock holding and handling costs. A management system is an information system that is used by a business to ensure they can manage and fulfill their tasks through a framework of procedures and processes. Typical management systems are used to maintain data within an organization as well as ensuring data is shared accurately, or for the management of services or products offered. A management system could also be defined as the integration of traditional management methods with a computer system to create a tool for strategic and automated information management.

An inventory management system is usually used to automate a sales order fulfillment process. These types of system are designed containing a structure whereby it contains lists of orders to be fulfilled then prompts the sales employees to select the desired items and mark them packaging and shipping information. Modern inventory management system serve the purpose of keeping tracks of inventory objects whereby the system relies on barcodes or RFID tags to uniquely identify the object. When recording a transaction, the system automatically identifies the inventory object by scanning the barcode or RFID tag, and then additional transaction information is collected from the operator via work terminal which could be a workstation or mobile computer.

The features of an inventory management system such as physical inventory counting and cycle counting can enhance an organization. With the availability of various kinds of inventory systems, in the current environment the size of a business is not a concern because there are various kinds of systems to suit any business.

Evolution of Inventory Management System

Through the end of 1980’s, sales and accounting related modules were the main focus of majority of software solution for retailer, manufacturers, and wholesalers. During the early 1990’s, many distributors began to notice the relevance of an effective way of controlling and managing their largest investment of corporate assets which is inventory. This lead to the development of comprehensive inventory management modules and systems by several software companies. Presently, many businesses rely on modern inventory management systems to automate and integrate all aspects their business operations from order management, shipping management, billing systems, to inventory control all in one software package.

Information technology provided a way to convert sales and purchasing into a strategic business operation. Businesses now are faced with the challenge of finding out how to use these technologies to gain value and competitive advantage. Inventory management system can deliver these advantages. Large software companies like IBM, Microsoft, SAP, and Oracle have already designed effective inventory management systems for large businesses. These software solutions cost thousands to millions of dollars. They have now turned to focus on smaller businesses. Some of the popular inventory (supply chain) management systems produced by Microsoft include Great Plains and Solomon, which are now joined together and called Microsoft Dynamics GP.

Types of Inventory Management System

1. Network Inventory Management System

Real time inventory management system: use wireless, mobile terminals to record inventory transactions, the moment the transaction is processed. Transaction information is transmitted via wireless LAN to a central database.

2. Stand Alone Inventory Management System

Stand alone inventory systems are usually employed by small size or medium sized businesses. These kind of systems work offline and are not connected to other systems. Stand alone systems are usually used to store Customer data and inventory, usually all stored on one local database. For example for small businesses like convenience stores and shoe stores, it could be an expensive business option to purchase and use an expensive electronic inventory management system hence a standalone application could be the nearest option to the manual system since it automates the basic functions of inventory management. It would not make sense a small business located in one location implementing a web based or network based inventory system when they only sale inventory locally. These kinds of systems are not suitable for large sized business in manufacturing or production with a study in 1996 by the International Mass Retail Association (IMRA), for example, concluding that stand alone management system packages acquired to perform individual functions will soon become obsolete because they do not integrate well with other systems.

3. Web Based Inventory Management System

Web based systems are web applications that can be accessed from any computer with a web browser but without any physical application installed on the local computer. In inventory management systems, a web based application can be a smart move for businesses because it offers the benefits of secure storage, sharing files and accessibility which make managing your data with other hosted applications a smart strategy. A web application is an application delivered to users from a web server over a network such as the internet or an intranet. A reason for the popularity of web based applications is due to the functionality of the web browser as a client, sometimes called a “thin client”.

When choosing inventory management applications, the ability of a web based application to update and maintain web applications without distributing and installing software on potentially a numerous number of clients is another reason why these kinds of system are becoming much favored by users. A key strategy that is been capitalized on by software companies is to provide web access to applications that are been distributed as local applications whereby these programs allow the user to pay a monthly or yearly fee for use of the application without having to install it on a local hard drive. Software companies that are following this strategy are known as an application service provider (ASP), and ASPs are currently receiving much attention in the software industry.

The main concepts behind web based application is to centralize information hence by using databases to store data like consumer information, salespeople can update a client’s address and the update will instantaneously be available to all users throughout the organization. Too many small and medium-sized businesses suffer from de-centralized information because they implement stand alone applications which are not a logical way of centralizing information.

Implementing Effective Inventory Management Systems

Inventory management is very relevant for today’s businesses in order to ensure quality control in businesses which presently is centered mostly on customer satisfaction. Inefficient inventory control or management can therefore cause customer dissatisfaction when they run out of stock of an item the customer needs. In order to avoid this, most businesses are willing to invest large amount of money in acquiring an effective and efficient inventory management systems.

A good inventory management system will be able to alert the retailer when it is time to reorder. It is also an important way automatically tracking moving inventory. An efficient inventory management system helps to minimize the risk of error. For example, if a business orders large quantity of goods, and say 10,000 are missing. Manual counting each goods is likely to result in error but these errors can be avoided using an automated inventory management system. In retail stores, an inventory management system can also be used to track theft of retail merchandise, providing valuable information about store activities.

Inventory management systems must be designed to reflect and support company’s strategic plan as well as adapt to market changes due to worldwide marketing or new technology. It should also provide relevant information to efficiently monitor inventory movements, coordinate and integrate internal processes like accounting or billing, manage people and equipment and communicate with customers.

Inventory management system must be able to integrate the following processes in order to ensure continuity between functions:

  • Sales Forecasting: this requires the system to provide necessary information to coordinate business operations effectively and manage equipment and people. It should allow managers to make accurate and real time decisions.
  • Sales and Operations planning: inventory management should control or handle fluctuations in market demands and lead time
  • Company’s Strategic goals: Alignment with company strategy is an important aspect of the business and necessary for its success and therefore inventory management should be designed to align with the company’s strategic goal and market demand.
  • Production and materials requirement planning: inventory system s should provide a balance of demand and supply at a minimised cost, inventory level and work load to achieve customer satisfaction.

These processes however vary from business to business depending on how the businesses carry out its processes, and on the market demand.

Benefits of Using Inventory Management Systems

The following are some of the advantages that businesses achieve while using inventory management software:

  • Businesses get faster return on investment (ROI) which is as a result of lower carrying cost.
  • Inventory software can provide accurate up-to-date information about inventory thereby improving sales forecasts.
  • Replenishment Planning. This means that Inventory management software can notify businesses the safest time to delay order without affecting customer satisfaction and cost.
  • It also proved the ability to separate safety stock according to customer satisfaction and profitability.
  • Increased sales.
  • It can also encourage sales staff to promote products without running out of stock by improving inventory visibility.

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