Inventory management is a part of the supply chain management, which includes various aspects such as the process of ordering, storing and using the company’s inventory like raw materials, its components, and the finished products.
It is also used for controlling the number of products for sale. It helps to manage the inventory and stock of the company.
Inventory management has been defined quite simply as having the right inventory of the right quantity and place to be sold at the right time with the right cost.
Having effective inventory management helps to ensure that there is a sufficient amount of stock available at hand to meet the customer demands.
Mishandling of inventory management could result in enormous losses for businesses due to the unfulfillment of potential sales or overstocking. Inventory management ensures that such mistakes are avoided.
Methods of Inventory Management
Here are some of the widely used inventory management techniques that are used by traders and online sellers.
Economic Order Quantity (EOQ)
EOQ is the least amount of inventory that should be ordered for meeting peak customer demands without running out of stock or producing obsolete inventory. The purpose of EOQ is to reduce inventory to the minimum and lower the cost of inventory to the least possible amount. EOQ uses the three variables, viz.,
- Relevant Ordering Cost
- Relevant Carrying Cost
Minimum Order Quantity (MOQ)
It is the least set amount of stock that a supplier is prepared to sell. In case the buyer does not agree to purchase the MOQ of a product, then the supplier will not agree to execute the order.
The purpose of MOQ is to ensure suppliers can increase their profits while selling more inventory quicker and eliminating “bargain shoppers.”
MOQ is fixed depending on the total cost of inventory including other expenses to be paid before making a profit. This ensures MOQs help the wholesalers in maintaining profitability with healthy cash flow.