What Is Inventory Management?

Fishbowl CMO Kirk Tanner takes the enormous concept of inventory management and explains how it all works, including the receiving, shipping, accounting, and distribution processes. As a bonus, he compares a manual inventory management system and an automated system.

Welcome to Whiteboard Wednesday where we discuss inventory management issues, and we keep the concept small enough that we can fit it onto a whiteboard. I’m Kirk Tanner, and I’m Chief Marketing Officer at Fishbowl. And today we’re going to talk about: What is inventory management?

Now this drawing here is a very simplified version of what inventory management is, but it’s good enough to get our point across.

Let’s start out over here. We get goods delivered that come into receiving. All these items in receiving eventually have to be put away on the shelves, and then later on we’re gonna pull these items. Some of these items might be pulled to be used in a manufacturing process, or we might be involved in wholesale distribution and we’ll just pull these goods and send them out to our customers so that they can do things with them.

Regardless, whether you’re a manufacturer and you’ve got a finished good or you’re sending out parts, all those pieces need to be shipped out at some point.

A lot of companies will actually do a manual process to keep track of all of this and accomplish their business processes. Some are using an automated process.

Let’s talk about the manual process here for a second. This is very labor intensive. We’ve got a lot of data that we need to keep track of. This is only a small sampling of the data: Lot numbers, serial numbers, cost, quantity, dates for production, expiration, and shipment. When those goods come into receiving that data needs to be captured for efficiency purposes and keeping track of your inventory.

You move that from receiving over to the shelves and you’ve gotta update all this information that you’re tracking. When you pull this, you’ve gotta update it again.

So, again, if it’s a manual process you’re involved in a lot of labor-intensive activity to move these items all the way through to pick, pack, and then ship them. That manual process is very labor intensive.

In an automated process, when this truck delivers the goods you have a couple options. One, if it’s a large shipment you can move it right into receiving and then scan it with a barcode scanner and move it into these locations, scan these locations, and now your automated system knows exactly where all that inventory is.

If it’s a smaller shipment that arrives, you can skip this whole receiving area and just barcode it right into the places that you put it on the shelves, and you know exactly where it is, how much you have, and it’s there when you need it.

Now when you pull it off the shelves, again, you’ll barcode it, it’s updating your system, it’s going through the manufacturing process or you’re pulling it for distribution. But this whole pick, pack, and ship process that ends up here, you’re tracking all of this through this automated system so that when it ships out the door all of your inventory is dynamically updated and is real-time data, which ultimately gives you better information.

So our final math here, in our accounting terms, is we want to increase our tracking efficiency. We want to do a much better job of tracking all the parts that go through your business. We want to decrease the amount of time you spend doing that. And the result of this is you get much better business information.

Now, to run your business, the better the information, the better the business decisions you can make. So having this automated system becomes very, very valuable because of the reports that you can get.

Of course, with better business information, better reporting, you get much greater efficiency and you reduce your costs and you have a much better-run business.

That’s it for this Whiteboard Wednesday. Join us again next week. Thanks.

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