In today’s fast-paced, cutthroat marketplace, it’s imperative to streamline business operations in the food industry. Many companies leverage tools such as automated inventory management software and ERP systems for cost control, production efficiency, inventory optimization, financial health, and more.
This piece will explain why inventory management matters (including defining key terms and discussing the major benefits inventory management provides), explore different types of inventory management, and expound on a few future developments expected to revolutionize the inventory management market.
Key Definitions Related to Inventory Management
In order to truly expand upon what inventory management is, we need to cover a few key definitions: stock, inventory, and inventory management.
Let’s start with the most basic terms applicable in the food industry: stock and inventory.
Stock vs. Inventory
- Stock is products available for sale. This can be a completed product or components like raw materials or completed parts that allow a customer to create a complete product on their own.
- Inventory is anything that is used to make a sale. This typically includes finished goods that are ready for sale (aka stock), but also raw materials and components, any items that are in progress but not finished yet, anything used for maintenance, repairs, or operation, items that are in transit within the supply chain, packing materials, and non-physical assets like subscriptions or licenses that are necessary to make the product.
An example of stock in the food industry would be a hamburger, a combo, or a hamburger and drink with no fries. It would not be a hamburger patty or bun because those are required to make the complete product available for sale. While both cannot be counted as stock, these and the other items listed would be inventory.
In other words, stock is inventory, but inventory is not always stock.
Inventory Management
Next up, we have inventory management. Inventory management is the process of overseeing all inventory and stock levels to ensure your business has enough stock and inventory available to run properly at all times. It’s knowing the finer details of when, where, what, how, and how much inventory to keep.
Why Does Inventory Management Matter?
Inventory management is a crucial aspect of business operations that involves systematically monitoring and controlling stock levels, ensuring that the right quantities of goods are available at the right time.
This process encompasses various stages, including production, stock control, and order management, all aimed at optimizing the flow of products throughout the supply chain.
By integrating inventory control with logistics and production processes, the benefits of inventory management to businesses are significant. They can maintain a competitive edge, adapt to changing demand with real-time data, and drive overall efficiency in their supply chain management.
In short, effective inventory management helps businesses minimize costs and reduce excess inventory waste. This enhances customer satisfaction by ensuring timely order fulfillment.
Types of Inventory Management
If you’re asking, “What are the three major types of inventory strategies?” then you’ve come to the right place. There are quite a few ways to manage inventory, but by far the most common are the push, pull, and JIT (just-in-time) methods.
Today we’re going to cover the following:
- Push Inventory Management
- Pull Inventory Management
- JIT (Just-in-Time) Inventory Management
- Manual Inventory Management
- Asset Tracking (including barcode tracking, RFID, and blockchain)
- Material Requirements Planning (MRP)
Push Inventory Management
Push inventory management is a strategy based on forecasting demand and producing goods in anticipation of that demand.
In this model, products are manufactured and pushed through the supply chain to retailers or end consumers, regardless of current demand levels. This method relies heavily on historical data and market analysis to make predictions.
Advantages:
- Efficient production scheduling
- Bulk purchases drive costs down through discounts
- Consistent availability
Disadvantages:
- Risk of overstock
- Less flexibility to adapt quickly to market changes
- Cash flow issues
Pull Inventory Management
In stark contrast to the push strategy, pull inventory management is driven by actual customer demand rather than demand forecasts.
This method relies on the principle that production and replenishment should only occur in response to specific customer orders. Pull inventory management is particularly effective in environments where customer preferences fluctuate frequently or where demand can be unpredictable.
Advantages:
- Reduced waste (especially related to obsolete inventory)
- Lowers chances of overstock
- Increased flexibility in meeting consumer demand, which keeps customers happy
- Improved cash flow
Disadvantages:
- Lead time issues (where it may not be possible to fill orders if a huge surge in demand occurs)
- Inventory control complexity (may require more sophisticated software) that is dependent on more accurate demand forecasting
- Higher operational costs due to more frequent small orders and missed bulk discount opportunities
Just-in-Time Inventory Management
Just-in-Time (JIT) inventory management is just what it sounds like: a strategy where retail businesses receive goods only as they are needed in the production process, thus minimizing inventory costs. This methodology relies heavily on accurate demand forecasting and finely tuned supply chain operations.
Advantages:
- Reduced expenses related to production and storage costs, as well as insurance covering both inventory and stock
- Reduction or elimination of wasted inventory and stock
- Improved productivity and efficiency
- Greater ability to adapt to the market
- Better quality control (as businesses can stay apprised of the condition of items in stock and deal with it appropriately)
Disadvantages:
- Vulnerability to supply chain disruptions
- Increased shipping costs
- Dependence on accurate demand forecasting
- Difficult to maintain efficient perpetual inventory levels that account for changes in consumer demand
Manual Inventory Management
Manual inventory management is a traditional approach that involves taking a count of physical items in the inventory by hand and is recorded either with pen and paper, on a spreadsheet, or in a simple inventory tracking system.
Some businesses do manual inventory management daily, while others do it periodically (whether weekly, monthly, or yearly). It is most often seen in small businesses with lower quantities of inventory items or those lacking advanced technology because doing physical inventory counts manually is not advised (see disadvantages below).
Advantages:
- Reduced overall cost to manage inventory
- Simplicity in implementation (little to no software required)
- Greater control over inventory tracking, allowing for detailed oversight and quicker adjustments
- Flexibility in data entry, enabling businesses to customize reports and inventory tracking according to their specific needs
Disadvantages:
- Time-consuming, especially in larger operations that require frequent counting and tracking of inventory
- Higher chances of human error, such as miscounting or misrecording items
- Limited scalability, as managing larger volumes of inventory can become overwhelming without the aid of technology
- Lack of real-time visibility into inventory levels, making it harder to respond quickly to changes in demand or issues in supply
Asset Tracking
This method uses technology like barcodes, RFID (Radio Frequency Identification), and blockchain in concert with inventory management software and is more automated than manual inventory management.
Advantages:
- Increased accuracy, efficiency, and speed of operations
- Real-time inventory monitoring for enhanced reporting
- Cost-effective for increased savings on inventory management
- Software integration capabilities
- Enhanced security by tracking inventory movement.
Disadvantages:
- Can lead to human errors such as mislabeling or miscounts
- Implementation can be complex and time-consuming, requiring significant resources for training staff and integrating with existing software solutions.
- Depends on specialized hardware that can be expensive and may require regular maintenance or updates. This hardware can also be lost or stolen.
- Once set up, asset tracking systems may be rigid, making it difficult to adapt to changes in inventory practices without significant alterations to the system.
- Can lead to an over-reliance on technology, which may be problematic in situations where technology fails or is not accessible, leading to potential disruptions in inventory management.
- Cost of maintenance can be prohibitive
Material Requirements Planning (MRP)
Material Requirements Planning (MRP) is a production planning and inventory control system that ensures materials are available for production and products are available for delivery to customers. MRP focuses on managing manufacturing processes and relies on three key elements: inventory, production scheduling, and demand forecasting.
Advantages:
- Improved efficiency
- Cost reduction
- Increased flexibility
- Optimized inventory levels
- Enhanced customer satisfaction
Disadvantages
- Complex to implement
- High initial investment
- Dependence on accurate data
- Limited flexibility
- Overemphasis on demand forecasting
Future tech that will revolutionize inventory management:
If you haven’t had a chance to see some of the new technology at work in your business yet, you will soon. Whether you’re an employee or a business owner, these advancements in tech are being used to increase competitive advantage and maximize efficiency.
Let’s go a bit deeper on the main advances.
Artificial Intelligence (AI) in Inventory Management
AI is useful for optimizing the efficiency of tasks that a human usually takes care of while reducing the risk of human error. AI can analyze vast amounts of data in real time, enabling businesses to predict trends and manage their current inventory levels more effectively.
For instance, AI algorithms can forecast demand based on seasonal trends, historical sales data, and even external factors such as economic indicators and weather conditions. This capability allows companies to adjust their stock levels proactively, minimizing the risk of stockouts or overstock situations.
Automation in Inventory Management
Automation is another technological advancement reshaping inventory management. Automated inventory management systems can track product levels, manage reorder points, and generate purchase orders without the need for manual intervention. This technology, paired with other inventory software, significantly reduces the administrative burden on staff, freeing them to focus on more strategic tasks such as improving customer service or exploring new market opportunities.
Furthermore, automation enhances accuracy by minimizing human mistakes in data entry and management, ensuring that stock levels are always current and reflect the actual inventory on hand.
IoT and Smart Inventory Management
The Internet of Things (IoT) is revolutionizing inventory management by providing a seamless connection between physical products and digital data. Smart sensors can monitor inventory levels in real time, allowing businesses to receive instant alerts when stock reaches a predetermined threshold. This leads to improved inventory visibility and responsiveness throughout the supply chain.
The integration of IoT in inventory management allows businesses to monitor items from the moment they are produced until they reach the endpoint, mitigating risks related to theft, loss, or misplacement. This transparency helps maintain accurate inventory records and builds consumer trust as customers are provided with more information about product origins and availability.
Conclusion
As businesses adopt new technologies, different types of inventory management systems have emerged, each catering to specific needs, business types, and operational styles.
We’ve covered a lot in this post, but hopefully, you have a better idea of how inventory management is not only helpful to your business, but absolutely essential.
If you need a reliable option for inventory management software, SynergySuite has you covered. Our all-in-one restaurant management software suite allows you to not only manage inventory, but also streamline purchasing, handle employee scheduling, improve operations, stay on top of food safety, and easily pull reports.
Schedule a demo today!
