What is inventory management and its importance?

Inventory management is the process of efficiently supervising the acquisition, storage and use of goods and materials within the company. The purpose of inventory management is to ensure that there is sufficient stock in the right place and in a timely manner to meet customers' requirements. By maintaining optimal inventory levels and effective distribution, inventory management helps companies operate smoothly and effectively.

Effective inventory management is critical to the overall stability of the supply chain. If the available stock is too little, the organization will not be able to meet the needs of its customers and meet orders. If the inventory is too large, the product may expire or become obsolete and thus become unsellable and make the company profligate. With an effective inventory management system, many of these problems can be avoided. As a result, storage costs will be reduced, cash will be released and orders will be executed on time and without waste.

What are inventory control systems?

Inventory control systems are technical solutions that integrate all aspects of the organization's inventory functions including shipping, procurement, receipt, warehouse storage, sales, tracking and re-ordering, While there is some debate over the differences between inventory management and inventory control The reality is that a good inventory control system does all this by adopting a comprehensive inventory approach and enabling organizations to take advantage of meagre practices to improve productivity and efficiency along the supply chain, With the right inventory at the right locations to meet customers' expectations.

Inventory control systems, such as inventory control applications, provide a variety of functions that help companies manage different types of inventory, inventory control systems typically consist of a barcode-marked inventory management software to identify inventory assets, information about each item is stored in a central database, and there
Two types of inventory control systems, where it comes to as we indicated at the beginning of the permanent inventory system, the periodic inventory system.

Differences between permanent inventory system and periodic inventory system

Both procedures are very important with respect to inventory, the permanent inventory system is an inventory valuation system while periodic inventory is a method of inventory inspection. Each system is explained below:

1. Permanent Inventory System

A permanent inventory system is a way of valuing inventory where an increase or shortage of inventory is recorded immediately after sale or purchase, and this system continuously tracks inventory balances and provides full details of inventory changes through instant reporting.

The main advantage of the permanent inventory system is that it shows the amount of stock available at any given point in time and is a successful way to prevent stock depletion. Moreover, since stock levels are updated on a real-time basis, the balance in the inventory account and the cost of calculating the goods sold remains correct throughout the accounting year.

This calculation mechanism is vital because inventory is one of the most important assets in circulation and ratios such as turnover should be calculated to make working capital management decisions. At the end of the year, the permanent system will compare the balance of physical inventory with accounting records to verify whether there are any discrepancies.

The permanent inventory system tracks inventory balances continuously. This is done through computerized systems using POS, and enterprise asset management technology that records inventory purchases and sales, it is far more complex than the periodic inventory management system.

2. Periodic inventory system

Periodic inventory systems are systems in which inventory inventory is made at the end of a specified period, where opening inventory is checked at the beginning of the period through the actual counting of all items in inventory, and with purchases of new inventory and sales rosters made when selling a product, an actual inventory of all inventory is made at the end of the period.

Periodic inventory system is often used by small companies that have easy-to-manage inventory and may not have much money or opportunity to apply computerized systems in their workflow, and as such, they use accidental physical inventory to measure their inventory and cost of goods sold (COGS).

Companies may not necessarily be aware of the inventory they hold prior to counting, which takes place at regular intervals - weekly, monthly or quarterly, here's how the process works:

• The inventory Party shall record all available inventory at the end of the period.
• Goods purchases are recorded in the purchase account
• This is transferred to inventory calculation after inventory
• This new balance is then applied to the beginning of the new period, after which the process begins again.

Because companies often carry products in their thousands, conducting physical counting can be difficult and time-consuming, Imagine having a desktop store and trying to count and record every ballpoint pen in stock And now multiply that in the office supply chain, which is why many companies do a physical count only once every three months or even once a year. And for companies that are subject to periodic inventory system, it means that inventory account numbers and cost of goods sold are not necessarily very recent or accurate.

The cost of goods sold includes items such as labour costs, direct materials and factory direct overhead costs.

Conclusion:

Inventory management systems simplify and automate inventory-related tasks across the organization. Modern inventory management systems can be used to track goods and resources throughout their life cycle where geographical location and remote tracking are located. This allows companies to get a view of the moving parts of their supply chain process and identify bottlenecks and fix problems before they start to accumulate.

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reference:

1.<<POS Systems for Small Business>>، kaleidoscot
2.<<POS Meaning – Definition of Point of Sale System>>, miamiherald