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What Is The First Step Of Inventory Management? | Step By Step Guide

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    The current concern over global supply chains and the difficulties that both suppliers and distributors have in meeting customer demand has renewed focus on the importance of supply chain management, inventory management, and materials management. While all three components are critical for companies to succeed, we will be focusing on the importance of inventory management, which encompasses elements of both supply chain management and materials management.

    Inventory management is crucial for business success and being able to meet customer demand. To manage inventory adequately, a business must first commit to ‘inventory control.’ But what exactly is meant by inventory control, and how does it differ from other inventory processes?

    What Is Inventory Management & Why Is 'Inventory Control' The First Step?

    First, let’s get some key terms out of the way to answer why inventory control is the first step to formulating an inventory management system. Inventory refers to the raw materials, finished/final products, and ‘works-in-progress which a company stores; inventory is interchangeable with stock.

    Inventory management covers a wide array of business operations; usually, inventory management is concerned with the entire supply chain and product life cycle. Thus, inventory management will focus on securing supplies at one end and ensuring that customers receive their orders at the other end.

    Now, inventory control comprises the systems and policies that businesses have implemented to maximize inventory efficiency. In practice, maximizing inventory efficiency focuses on the need to strike a balance between having enough inventory on hand to meet consumer demand while spending as little as possible on inventory.

    Thus, inventory control systems are focused on purchasing, shipping, and storing stock (stock will usually be stored in a warehouse) as efficiently as possible. Inventory control is further concerned with the need to reorder products.

    However, inventory control is also focused on firmly establishing current stock levels to gain an overall picture of what you have in your inventory. Without this critical first step of ascertaining what you have in stock, it is impossible to determine whether you can meet customer demand and when you need to reorder products.

    Inventory control is the first step in any inventory management system, but additional features are critical for businesses to succeed.

    What Does An Inventory Management System Include?

    Inventory Control:

    As previously discussed, determining current inventory levels is the first step a business must take in inventory management. Without this critical step, a company cannot decide on its future business activities.

    Demand Forecasting:

    There are multiple avenues a business can use for forecasting future demand. Using past sales’ activity and records as a guide is one such method. The importance of forecasting demand cannot be understated – if an inventory management system does not include this, businesses will purchase their inventory without any guarantee it will sell. Additionally, there are many variables a company has to account for when forecasting demand – including seasonality, product duration, product lead times, and changing consumer preferences.

    Execute Order With Suppliers:

    Once inventory levels are determined and demand has been forecasted, businesses will execute their order with suppliers.


    Inventory management systems must track inventory as it moves from your suppliers to your warehouse. Moreover, as part of inventory control, businesses will usually purchase their products in bulk to reduce shipping costs and ensure inventory turnover.

    Warehousing And Inspection:

    As the supplies arrive at your warehouses, they are inspected to ensure no damage has occurred during transportation. Following this inspection, inventory will have to be arranged and categorized in the warehouse. Having organized warehouses is critically important to maintain business operations. Disorganized warehouses result in additional productivity costs, as more time will be spent locating inventory.

    Customer Orders Are Placed:

    Once consumers place their order, a good management system will ensure that their requested product is in stock.

    Track Customers’ Orders:

    A customers’ order must be tracked until they have received it. Additionally, businesses must ensure that the customers’ order arrives on time, that the order is correct, and that the product arrives in good condition. If companies are successful at meeting these fundamental requirements, customers will use their service in the future!

    Reordering Point:

    As inventory levels begin to deplete, businesses must establish a reordering process. Usually, this process is now automated.

    Stock Counts:

    To determine your current stock levels, periodic inventory and cycle counts are essential. Stock counts ensure your business has enough safety stock; additionally, the software has automated many time-consuming stock counting processes, ensuring that stock counting is easier than ever!

    Feedback And Monitoring:

    Inventory management systems will need some time before they reach optimal performance. It is for this reason why monitoring and feedback are essential parts of inventory management. A straightforward ‘test’ to see if an inventory investment has worked is if the stock has sold; if a large quantity of a particular product has not sold, it may be time to readjust how your business anticipates customer demand. It can also be helpful to incorporate known best practices of inventory management here.

    An essential dimension of an inventory management system is the use of inventory management software. Inventory software is necessary to reduce human error during stock counts and maintain a company’s competitive advantage and market share.

    We will discuss the importance of this software later and how an organization such as the NonStop Group can, for example, help your business reduce costs, increase business efficiency, optimize your inventory control and processes, and help you ensure a continued profit.

    What Does Inventory Control Help With When Doing Inventory Management

    As mentioned, inventory control is concerned with anticipating future customer demand and using control systems to help maintain a healthy inventory balance (that is, a balance between overstocking and understocking).

    Now that we have discussed the components of inventory management systems, we can discuss how inventory control enhances inventory management.

    Optimizes Inventory Turnover

    To generate profit from your inventory, a business must balance between overstocking and understocking inventory. Having firm control of your inventory levels is, therefore, essential to optimize turnover. Low inventory turnover is a sign that too much stock has been purchased, while high turnover means that a business will struggle with demand spikes.

    Increases Cashflow

    Inventory is best described as a ‘double-edged sword’ – while it is needed to generate money, if the inventory does not sell, it is a drain on company finances. Thus, part of the inventory control process entails not purchasing inventory or materials unless you can sell them.

    Until a business sells inventory, it ties up valuable capital that can be of more value in other company sectors. By controlling their inventory, companies can avoid tying up their money unnecessarily and increase their profits.

    Brings A Positive Change To Your Customer Service

    The ultimate value of controlling your inventory is building a reliable base of customers through consistently excellent service. Good inventory control systems will ensure customers will never place an order out of stock and receive the correct product on time. Conversely, a business with loose inventory control will struggle to build a reliable customer base.

    Convenient To Carry Out With The Help Of Inventory Management Software

    Inventory management software is among the most powerful tools an organization can employ to improve overall business performance. The importance of software will be discussed further below, with the NonStop Group serving as an example of a company that can help you manage your inventory.

    Keeps Your Supply Chain Optimized & Running Smooth

    The ability of businesses to meet customer demand depends on the performance of their supply chain. However, to truly optimize your supply chain and keep it ticking along, inventory control is an essential precondition; without it, businesses will not know when to order more goods from their suppliers.

    Are There Ways To Enhance The Overall Process Of Inventory Management?

    As we have continuously hinted, the answer to this question is to be found in the increasing importance of software tools to the inventory management process.

    Inventory Management Software: Using software in any inventory process is bound to enhance the efficiency of your business. For a start, inventory management software is essential for the ‘first step’ of inventory management – which is to forecast future demand; software is also necessary for gaining an overall picture of inventory levels. As new inventory arrives at storage locations, they can be assigned a barcode that designates their location and overall quantity. Locating inventory when customers have purchased products will therefore be more accessible and save valuable time.

    Moreover, management software can be integrated with your point-of-sale systems, which means that inventory levels will automatically update after a product has been sold or moved. Inventory software can also automatically reorder stock once a designated product is running low. With such powerful software on hand, companies can reduce the risks of overstocking and understocking.

    Inventory software is also needed to track inventory as it moves from your supplier to your warehouses. Their products must be followed as they move from your storage facilities to their front door to guarantee consumer satisfaction.

    A second way to enhance the inventory management process is to consult experts in Their software and inventory management. Should your business require help in setting up inventory software, consulting with the NonStop Group should be a top priority! Companies that have worked with the NonStop Group have seen improvements in inventory management and a reduction in labor inefficiencies. Whatever your needs, the NonStop Group has you covered – contact them today!

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