When you have an eCommerce, or a physical store, you know that one of the first needs you will have will be to carry out a stock management, that is, of all the materials (human, physical ...) that a company has.
If you do not know what is inventory management, or the importance it has in the good work of a company, you have to read this information where you will find an answer to all the doubts that have been raised.
What is inventory management
The RAE (Royal Spanish Academy) defines the word stock (English) as "merchandise" and relates it to companies in that they are merchandise that are intended for sale and that they are kept in a warehouse or shop.
Therefore, we could define inventory management as that tool that allows to control the merchandise that a company has to optimize the results in terms of releasing those products so that others can enter.
The objectives of stock management
Stock management is very important for companies, especially for those that have a wide variety of products in their catalog. When a business has hardly any products, management is very easy to carry out. But as that catalog expands, it becomes increasingly complicated. Therefore, this tool is used.
In fact, among its objectives are the following:
- Have a faithful control of the inventory situation.
- Minimize investment in new merchandise that is not needed.
- Classify the products in order to know the status of each one of them and thus plan the purchase or not of material.
- Keep a record that can be linked to the purchasing department so they know what can and cannot be sold.
Stock types
You already know what inventory management is used for. What you may not be aware of yet is that these can be classified in two different ways. On the one hand, you will be able to value it according to the function they have; on the other, according to a criterion (for example, that it is of a certain form, of a specific family, etc.).
How the stock is classified according to its function
If we look at the function that those products they have will have, the stock should be classified into:
- Minimum stock. They are the minimum stocks you need to avoid running out of the necessary products to meet customer demand.
- Maximum stock. It is the maximum number of stocks that you could have of the same product without your warehouse collapsing or causing a loss because you will not be able to get rid of it in a certain time.
- Security stock. This type of classification would include products that require a forecast, that is, it is expected that there is an excess order for that product, or a delay in what has been requested.
- Surplus stock. They are the products that have accumulated and that now are not sold. These take up space and therefore you have to try to get rid of them, either with offers, discounts, etc.
- Dead stock. It is the stock that is known not to be sold in any way. In this case, it is usually removed to avoid wasting space and money.
- Cycle, speculative and seasonal stock. Many say that there are three different types, but depending on the company you have, the three can be grouped into one. These are products that serve to meet customer demand, either because they demand it at that time (of the cycle), because it is expected that they will demand it (speculative) or because it is seasonal and there is a greater demand (seasonal).
How the stock is classified according to a criterion
In the event that you want to classify the products according to a certain criterion, this can be quite varied since you can do it based on:
- La product location, if they are in stock, on order, or discontinued.
- La product availability, that is, if they can be sold or customers have to wait a few days to have them. In this case, you could also consider order on demand here.
- La shelf life of products, Especially in case you have products that expire and you should get rid of them as soon as possible.
Of course, there are many more criteria that allow you to make different product classifications.
The costs of stock management
Now that you know a little more about stock management, you should know that having merchandise stored waiting to be sold is not something that is free. It carries a cost that can be more or less high depending on the product.
In general there are four important costs involved in the stock of a company: cost of order, maintenance, acquisition and stock break.
The order cost is the price it costs you to order from a supplier. We could say that it is something like a fee for asking that person, or because they send you the products you want. Then there would be the acquisition cost, which is what that merchandise costs you. In some cases, they eliminate this fee, because what they do is give you a "rental" of those products, in such a way that if you sell them later, it is you who must give them your share.
The maintenance cost is the highest, because we are talking about expenses in terms of personnel, computer system, storage, depreciation ... of these products. And finally, the out-of-stock cost is the money you would lose if you ran out of that product and couldn't keep up with demand.
Stock management models
Currently there are many models of stock management. But the truth is that only three manage to stand out right now. They are the Just in time, the Wilson model, and the ABC model. Each of them has a series of important peculiarities that you should know in order to know which one is the most suitable for you.
Just in time
The first of them, Just in time, is the on-demand mode, that is, when someone wants the product, it is manufactured and sent, that way Storage costs, product depreciation, maintenance costs are saved ...
An example of this type of management model is for the manufacture of cars. Although there are many factories that have cars ready to sell, they do not have all the colors or models, but, when they receive the order, they start to manufacture it to send it to the customer.
More and more companies are using it because of the many benefits it has compared to others.
Wilson model
This model establishes a fixed order cost for suppliers, whatever is requested. In this way, if the order is larger, it will take longer to reorder, in such a way that you save on that cost. But at the same time you should know that the merchandise will leave the warehouse very quickly to avoid maintenance costs.
Therefore, it is based on establishing a balance to make few orders to the supplier, and sell a lot of product so that it does not remain in the warehouse.
ABC model
The ABC model classifies the merchandise in three letters: A, for the valuable ones; B, for the necessary and low value; and C, for the numerous and very cheap products.
Thus, priority is given to the most important goods, and that are more valuable (the A) compared to others that are not so much. And when it comes to managing the stock, a higher expense is established in the former compared to the medium or low, since it is the former that can have more negative repercussions in case of loss.
Software to manage stock
To finish our article, we want to leave you something practical so that, if you have a business and need to control stock management, you can easily do it through programs or software with which to manage stock.
The most used are the following:
Stock management with SAP
It is a computer software widely used especially in companies. You can control the human, financial, logistical, productive resources ... what makes this tool a complete one. The only thing that is not easy to learn, at least at first.
Stock management with Excel
The Excel program, either from the Microsoft Office package or from one of the alternative programs that have a spreadsheet, are another of the options you have for stock management.
With it you can prepare inventories with the products you have, their characteristics, price ... in such a way that you always know what you have in each moment.
Free online and paid programs
Finally, you have the online programs that allow you to make a record of the stock you have of your company and to be able to modify it when you need it. In this way, you would have it in the "cloud" and you could see it in real time at all times.