What is Supply Chain Inventory Management?

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  • Written By: Paul Woods
  • Edited By: Jacob Harkins
  • Last Modified Date: 14 May 2020
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Supply chain inventory management is a system of tracking the life cycle of a product, from the manufacturer receiving raw materials to a customer buying the end product, with a view toward improving the efficiency of that process. The goal of supply chain inventory management is to better anticipate when raw materials need to be ordered, better manage when products are produced and deliver products just when needed to the end seller. Supply chain inventory management is a process of managing the following business activities: sales, manufacturing, warehousing and shipping.

Designing a supply chain inventory management system begins with reviewing the ordering habits of end sellers of a given product, which is the manufacturer’s sales process. As patterns emerge from sales of a product, the manufacturer is better able to manage the purchase of raw materials and better schedule employee and equipment needs. Supply chain inventory management offers the possibility for the manufacturer to pay for raw materials at the time they are needed and avoid tying up funds in materials that will sit in a warehouse awaiting processing. It creates the same opportunity to reduce idle hours of workers and equipment.

Another goal and benefit of good supply chain management is reducing warehousing costs. A completed product must be stored by a manufacturer in anticipation of shipping to the end seller, and this process has two costs. Warehousing itself requires space and handling plus there is a cost associated with a product that has been completed but not sold. By anticipating end seller demand, supply chain inventory management can help a manufacturer reduce warehousing costs by completing the product nearer the time it is needed.

Shipping or transportation costs can similarly be affected by supply chain inventory management. In transportation of a product, typically the more timeliness that is required the higher the cost of shipping. By anticipating demand for a product, the manufacturer is better able to schedule shipping and to combine shipments effectively for end sellers in the same area. Both of these activities can reduce the cost of transportation.

Supply chain inventory management uses existing data available to a manufacturer to streamline the process of making, selling and transporting goods. The process, however, is not limited to manufacturers. Distributors of a product who acquire it from a producer and sell it to an end seller can similarly benefit by anticipating demand and using that knowledge to reduce costs. End sellers can use customer demand statistics to accomplish the same thing in their process of buying and inventorying goods to be sold.

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