Business Policy for Inventory Management

Businesses have inventory in the form of raw material, goods in the process of being manufactured and finished goods that are yet to be sold. Businesses have different policies in terms of managing these inventories.

Significance

Managing inventory well is an aspect that contributes to a business' success and profitability. Different inventory policies involve various tradeoffs, so companies should focus on their core goals when it comes to managing inventories. The U.S. Small Business Administration says that while an inventory manager should aim to keep the level of inventory low, this should not be done at the risk of sacrificing customer service.

Systems

Two major systems of inventory management in the manufacturing sector include the Material Requirements Planning system and the Just-In-Time management system. The MRP system entails scheduling materials more closely to cut down on inventory and delivery times. The JIT system tries to do away with inventory altogether.

Benefits

The U.S. Small Business Administration spells out some benefits of good inventory management in its publication on inventory management. Having an inventory policy in place helps businesses manage their purchasing activities. And good inventory management helps add to a company's profit levels both by cutting down on costs and by keeping customers satisfied.

References

• U.S. Small Business Administration: Inventory Management