Inventory management is an integral part of any successful business, serving to provide uninterrupted production, sales and/or customer service at a minimum cost.

Inventories usually consist of goods, raw materials and finished products. Since each of these elements is essentially equal to money for the business owner, effective management of these assets is key to making a profit and having optimum stock of items in your inventory.

An inventory management system tracks the sale, purchase and payments related to these elements of inventory. Ineffective inventory management can contribute to losses or business failure, since this crucial component is so vital to the profits and costs of the business.

Inventory management can be highly complex. This guide will provide you with a thorough knowledge of inventory management, including elements of an effective inventory management system, different tracking systems and other terms and procedures you need to know.

What Is Inventory Management?

Inventory management consists of many factors. Your business will use inventory management to replenish stock, track costs of inventory, track profits, forecast inventory, forecast prices, forecast demand and more.

The process involves finding a system to track orders, shipping, costs, stock and sales. It also involves the software that may be used to predict inventory status and track materials.

All of these factors will help keep costs in check, maintain a proper merchandise assortment, set targets and monitor profits efficiently. Inventory is one of your most valuable assets as a business owner, and an adequate inventory management system will help you track those assets and prepare them optimally.

Elements of an Inventory Management System

An effective inventory management system consists of a few basic elements. Most importantly, it is vital to be clear and descriptive of storage locations, items and inventory numbers. Ambiguous or unclear descriptions will be extremely difficult to manage later on.