Managing vs Controlling Inventory
What’s the difference?
by Mikhael Newman
They are interlinked, but slightly different processes that work together to help every business manage their cashflow. As all business owners know, cashflow is king and one of the biggest challenges to getting it right is the effective management of your inventory.
But with all those systems, apps and consultants trying to sell their inventory management solutions to us out there we need to understand what is what in the bigger scheme of things. Inventory Control Systems are transactional systems focused on the physical movement of products. They enable you to see what inventory you have on hand, what inventory is being sent to which locations/ warehouses and what inventory is owed to customers. In addition, they ensure everything is accounted for at any given time. The functionality of such systems typically includes: warehousing; receiving, binning, picking, shipping, stock takes, cycle counting, accounting; inventory costing, provisions for obsolescence, aged reporting, general ledger posting, accounts payable/receivable, etc.
Additional functionality may include for example, radio frequency identification (RFID), bar-coding and scanning, space and volume planning.
Inventory Management Systems provide functionality that tells you what to order, when to order and how much to order. By ordering the right amount of the right products at the right time, you will generate less excess inventory and improve your service to your customers while simultaneously reducing overall inventory value.
This frees up cash to help you to grow your business and reduces the costs associated with inventory, for example: working capital required for purchasing, warehouse space and storage costs, provisions for obsolescence, cost of write-offs, depreciation and insurance.
An effective Inventory Management System identifies the most important items through a classification process so that the time spent managing items yields the maximum results. Setting appropriate inventory levels and recommending optimal replenishment enables you to create the best possible orders at the time of ordering. It also provides early warning of potential issues, monitoring supply reliability and dynamically adjusting your re-order levels to accommodate changes in forecasts, seasonality, improving or worsening supply performance.
So in conclusion, Inventory Control Systems help your business to keep track of your inventory from a physical and an accounting perspective and an Inventory Management System helps ensure that the next order you place is the right quantity for both your customers and your business. An Inventory Control System can help you run your business, but an Inventory Management System can help change your business.