A successful inventory management plan has two components: maintaining the proper level of inventory and tracking the use of current inventory. Inventory management can involve not only the inventory of components used to produce items, but can also involve the inventory of finished products for sale. Through the creation of a purchase plan, the business manager can regulate the availability of items, ensuring that there is an adequate amount of materials available at all times – and can order the needed items to maintain that inventory. A purchase plan can be developed through sales forecasts and inventory logs. Inventory management can be vital to a company’s financial health by avoiding excessive purchasing or shortages.
There are several main philosophies for inventory management: Lower of market (LCM), “First in, First out” (FIFO) and “Last in, First Out” (LIFO). By establishing a specific plan for dealing with inventory levels, companies can maximize profits and ensure continual delivery of product to their customers. Inventory management deals with more than simply keeping track of items on shelves. It takes into account the process that brings the product to the company: unpacking and inspecting the items, insurance needs, as well as the cost of transporting the items.
An additional aspect of inventory management includes internal controls to eliminate theft or damage to items, track the movement of items and as a safeguard. By routinely double checking the inventory management software and then comparing it to the actual number of items in stock, the inventory management department can quickly investigate theft or internal control errors. An accurate, detailed reporting of the movement of materials and products through an inventory management program can give a company an itemized accounting for not only what materials they may need, but where they are losing money. Inventory management is vital for companies of any size.