Definition of inventory management, functions and methods used

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Definition of inventory management, functions and methods used

Definition of inventory management functions and methods used

Have you ever heard of inventory management terms or inventory management? The term is often used in operational management and production management.

Inventory Management is very important for companies, especially for manufacturing companies. For those who want to find out about Inventory Management, see the full description below:

Definition of inventory management

Inventory management is one part of the company. The section serves to maintain and manage the inventory owned by the company. Some activities carried out in inventory management are starting from how to obtain inventory, save, until the inventory is utilized.

The inventory here contains diverse meaning. Can be in the form of raw materials, maid materials, goods in processes, finished goods, even spare parts. Regulating the amount of inventory is not as easy as expected. If there is too much inventory, it will be higher in storage. Conversely, if it lacks it can inhibit the production process.

Not to mention the company must face a variety of uncertainty. Starting from demand uncertainty, order time, to supply from suppliers. This is what makes inventory management very important.


Inventory management is very important for the company. This is because the function of these activities is quite diverse. Here are the functions of inventory management.

1. anticipate the lack of inventory

This must be considered especially for companies that focus on producing goods. Although in general supply materials have definitely come on schedule, anticipatory steps remain important to do. To guard if it’s a supply to arrive late and will potentially disrupt the production process.

2. Anticipating inventory orders do not fit the needs

Conditions like orders that are not suitable may rarely occur. But it is not impossible to happen. The company always has to make sure the inventory order received is what is needed for the production process.

3. Guide if the inventory needed is not on the market

The main function of inventory management is to ensure inventory of material is always available. This step is to anticipate if the ingredients commonly used are not found on the market. Can because stock runs out, or anything else.

4. Guarantee the smooth production process

Especially for companies that focus on producing goods, the production process must be ensured to continue. This is done so that it can still be profitable and provide the need for consumers. Therefore inventory management is very important to maintain the availability of inventory so that it can still be produced.

Approach to inventory management method

In terms of inventory management, the company generally uses several methods. There are at least 5 inventory management methods commonly used by companies to manage inventory. The following is an explanation of each method.

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1. EOQ (Economic Order Quantity)

Commonly called the quantity method of economic order. It is one of the inventory management methods by buying inventory according to the order received. For example companies get orders.

It has been determined by the order of how many orders, specifications, and time when to finish. That once the company will take into account various things.

Including about how many material needs, specifications, and what price of raw materials to fulfill the order. So later the needs are clear and nominal. It won’t get the remaining ingredients, aka right. This method brings a lot of benefits. Starting from no maintenance fees, as well as warehouse fees to store the remaining ingredients.

2. MRP Method (Material Requirement Planning)

Meeting the material requirement planning method, the control method and inventory planning to ensure raw materials are always available. In addition to keeping raw materials remain to be used, this method is also useful to ensure a little amount of inventory. Why should the inventory a little?

That is because the fewer automatic inventory costs to keep the inventory are also less. In this method there will be some planning. Starting from purchasing scheduling, production schedule, until the delivery time of raw material inventory.


3. JIT Method (Just In Time)

This method has another term, a timely method. Allows the company as much as possible to be made not to stock or have inventory. So that the company is tried to have inventory 0 or close to zero. This is because if the company’s position like that inventory costs will also not be issued.

But if you don’t have inventory how can you produce? This is the advantage of this method. The company will try to buy supplies only when it is needed. So the amount can be adjusted to the need, and there will be no remainder. Then how?

By fostering good relations with suppliers of raw materials. Make them as if part of the company. So whenever and any supplier will always be ready to supply supplies.

4. ABC analysis method

In this method there is a supply classification where the classification is valued and inventory. What is meant by the value here is the total value of inventory, not the inventory price per unit. Every inventory item will be given a label according to its respective classes. This is done because each inventory item is treated differently.

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For example, there are wooden supplies, nails, and paint. Wood can be labeled with Grade A, because nails need special treatment for storage in a warehouse so it is not damaged. Then the paint can be categorized by class B, because the storage may be easier than wood.

For nails can be coded C because even though the number is much, the storage is much easier than the previous 2 inventory.

5. Periodic Review Method

In this method it allows ordering inventory materials in the same time. The message schedule for goods has been scheduled regularly, so the financial manager can estimate how much expenses for the purchase of the raw material. This method has its own advantage.

One of them is able to reduce fluctuations in demand for raw material needs. This method is also very easy to do because it does not need to go through a long administrative process. This is because the process of purchasing supplies has been routine.

But this method requires companies to multiply stocks to anticipate suddenly production orders to boom. Those are some brief explanations about inventory management. Starting from understanding, function, to methods commonly used. Can be a reference for those who have not understood the term.

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