Measuring and Managing Inventory: Everything you Need to Know 

Inventory Management is a crucial component of any company or business. The quality and speed at which customers can obtain product is often a driving factor when deciding who to place an order with. So, imagine how detrimental it would be if your company wasn’t in the know of what you had in stock, the quantities, etc. 

Inventory is an asset and therefore, you need to have a process in place where it can be measured and managed.  

Let’s break down everything you need to know about managing inventory.  

What is Inventory Management? 

The process of overseeing and controlling the flow of goods, materials, and products within a business. It involves the acquisition, storage, tracking, and distribution of inventory to ensure that a company has the right quantity of items available to meet customer demand while minimizing excess or obsolete stock.  

Why is Managing Inventory Important? 

Imagine an order of a large quantity comes in, the order is accepted but when the time comes to package and ship you realize there isn’t enough stock to fulfill the entire order. This is where inventory management comes into play.  

Before this, it is also important to understand the difference between inventory control and inventory management. 

As noted by the Association for Supply Chain Management

“Inventory control focuses on the movement of products within a specific warehouse, while inventory management is the process of tracking inventory across an entire organization that may have multiple locations and warehouse facilities. While many processes make up inventory management, inventory control takes place at the warehouse level instead of the organizational level.” 

Now that we’ve broken down the difference between inventory control and management, let’s explore why it is important for companies.  

Managing inventory is crucial for businesses to meet customer demand efficiently, minimize carrying costs, and optimize cash flow. Effective inventory management ensures that a company has the right amount of stock on hand, preventing stockouts that can lead to lost sales or customer dissatisfaction, while also avoiding excess inventory that ties up capital and storage space.  

Common Challenges with Inventory Management and How to Resolve Them 

Accuracy, demand fluctuation, and physical storage are common challenges some companies face when looking at inventory management. Luckily, these challenges can be overcome with the help of your inventory management strategies. First, you need to identify what you’ll be measuring. 

Inventory management can be measured through several KPIs. Here is a high-level look at some potential KPIs. 

Inventory turnover ratio: The frequency of your inventory being sold and replaced, typically within the period of a year. 

Inventory accuracy: How well inventory records match the physical inventory in stock. 

Inventory carrying cost: How much, in total, it costs to manage and maintain inventory. This can include insurance, taxes, opportunity cost, depreciation, handling, and storage, etc. 

Fill rate: The percentage of customer orders that are fulfilled from inventory in stock, without backorders or delays. 

Cycle time: The time in which one cycle of inventory replenishment, from ordering to receiving, is completed. 

Demand forecast accuracy: The difference between real, actual, and the demand estimated at the factory level. 

Order cycle time: The time in which a customer places an order to when the order is delivered. 

Customer satisfaction levels: How satisfied customers are. 

Order pick, pack, and ship accuracy: Locating inventory and packing items to be shipped so orders can be fulfilled. 

Perfect order performance: How well an organization fulfills orders without errors. 

Inventory turnover: The frequency in which a manufacturer’s inventory is sold, replaced, or turned over. 

 Fill rate effectiveness: How many orders are fulfilled. 

Carrying costs of inventory: The hard-to-find costs of handling items. 

Gross contribution margins: Helps with measuring how well collaboration is happening across business units. 

Supplier quality index: How well a supplier is performing. 

For more details on each of these KPIs visit What are the key inventory performance indicators (KPIs) and how do you report them? and 10 Most Important Inventory Management KPIs and Metrics. 

Regardless of which KPIs you decide to measure, you need to ensure they are SMART (specific, measurable, attainable, relevant, and time-based) and catered to your organization. The KPIs you decide to track, and measure will be different from other companies depending on targets and goals. 

See challenges Kraft Heinz was facing with Inventory Management and how they overcame them here.

How to Manage Inventory: Planning Inventory Management Strategies  

When there are issues with inventory the entire workflow of a company can be disrupted, not just one area. One way to mitigate any potential issues before they occur is to have an inventory management process and system in place, so you have accurate numbers. 

Some benefits of an inventory management system and/or process include:  

  • cost savings 
  • cash flow flexibility 
  • customer satisfaction 
  • environmental sustainability 

To put it simply, inventory management plays a big role in the overall efficiency of a company and customer satisfaction. 

How The Owl Solutions Can Help  

After understanding the ins and outs of inventory management idea of managing your data may seem daunting and overwhelming. The good news? It doesn’t have to. 

With our platform at The Owl Solutions, we can help you monitor, detect, and resolve performance anomalies efficiently and in a timely manner. With our product, you can track and manage inventory performance and inventory expiration, in relation to your business financials.