Inventory management is one part of the company. The section serves to maintain and organize the inventory that the company has. Some of the activities carried out in inventory management are ranging from how to obtain inventory, store, to the inventory being utilized.
The inventory here contains various meanings. It can be raw materials, auxiliary materials, goods in progress, finished goods, even spare parts. Organizing the amount of inventory is not as easy as expected. If there is too much inventory, the higher the cost of storage. On the other hand, if it is not enough, it can hinder the production process.
Not to mention that companies have to face a variety of uncertainties. Starting from the uncertainty of demand, the time of ordering, to the supply from suppliers. This is what makes inventory management very important.
Inventory management is very important for the company. This is because the functions of these activities are quite diverse.
Here are the functions of inventory management.
1. Anticipating Inventory Shortages
This must be considered especially for companies that focus on producing goods. Although in general the supply of materials is certain to come as scheduled, anticipatory steps are still important to take. Just in case inventory arrives late and will potentially disrupt the production process.
2. Anticipating Inventory Orders Turns Out Not To Be As Needed
Conditions such as unsuitable orders may be rare. But it is not impossible that it can happen. The company always has to make sure the inventory orders received are the appropriate ones needed for the production process.
3. Just In Case The Supplies You Need Are Not On The Market
The main function performed inventory management is to ensure the supply of materials is always available. This step is to anticipate if the commonly used materials are not found on the market. It could be because the stock is out of stock, or something else.
4. Ensuring a Smooth Production Process
Especially for companies that focus on producing goods, the production process must be ensured to continue. This is done so that they can still achieve profits and provide needs for consumers. Therefore, inventory management is very important in order to maintain inventory availability so that it can still be produced.
In terms of inventory management, generally companies use several methods. There are at least five inventory management methods commonly used by companies to manage inventory.
Here's an explanation of each method
Economic Order Quantity Method
Commonly referred to as the economic order quantity method. Is one of the methods of inventory management by buying inventory according to the orders received. Let's say a company gets an order.
It has been determined by the booker how many orders, specifications, and the time when it should be completed. That way the company will take into account various things.
Including about how much the material needs, specifications, as well as how much the raw materials cost to fulfill the order. So later it will be clear what the needs and nominals are. It won't be until the leftover material happens. This method brings many benefits. Starting from no maintenance costs, as well as warehouse costs to store the remaining materials.
Material Requirement Planning Method
Better known as the material needs planning method, it is a method of controlling and planning inventory to ensure that raw materials are always available. In addition to keeping raw materials there for use, this method is also useful for ensuring a small amount of inventory. Why supplies should be cultivated to be small?
That's because the smaller the amount of inventory automatically costs to maintain the inventory, the less. In this method will be carried out some planning. Starting from scheduling purchases, production schedules, to delivery times of raw material inventory.
Just In Time Method
This method has another term, namely the timely method. Allowing companies as much as possible to be made out of stock or have inventory. So that the company is attempted to have an inventory of 0 or close to zero. This is because if the position of the company is like that the cost of inventory will also not be incurred.
But if you don't have supplies, how can you do production? This is the advantage of this method. The company will strive to purchase supplies only when it is needed. So that the amount can be adjusted according to needs, and there will be no leftovers. Then how to?
By fostering good relationships with raw material suppliers. Make them seem like part of the company. So that whenever and at any time the supplier will always be ready to supply supplies.
ABC Analysis Methods
In this method, inventory classification is carried out where the basis for the classification is value and inventory. What is meant by value here is the total value of the inventory, not the inventory price per unit. Each inventory item will be labeled according to its own class. This is done because each inventory item is treated differently.
For example, there are supplies of wood, nails, and paint. Wood can be labeled with grade A, because nails need special treatment for storage in the shed so that they are not damaged. Then paint can be categorized as group B, because its storage may be easier than wood.
For nails, it can be coded C because although there are many of them, the storage is much easier than the previous 2 supplies.
Periodic Review Method
In this method it is possible to place an order of material inventory within the same time distance. The schedule of ordering goods is already regularly scheduled, so the financial manager can estimate how much the expenditure will be on the purchase of such raw materials. This method has its own advantages.
One of them is able to reduce fluctuations in demand for raw materials. This method is also very easy to do because there is no need to go through a long administrative process. This is because the inventory purchase process has been scheduled regularly.
However, this method requires companies to increase stock to anticipate when suddenly production orders burst. Those are some brief explanations around inventory management. Starting from the meaning, function, to commonly used methods. Can be a reference for those who are not too familiar with the term.