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Inventory management: definition & important aspects for buyers
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Inventory management in a nutshell:
Inventory management comprises the systematic planning, control and monitoring of all material stocks along the supply chain. For purchasing, it is an essential tool for optimizing capital commitment while at the same time ensuring security of supply.
Example: By introducing an ABC-XYZ-controlled inventory management system, an automotive supplier reduces its average inventory holding from 45 to 28 days and thus reduces its capital commitment by 2.3 million euros per year while maintaining a delivery capability of 98%.
Contents
Introduction to inventory management
What is inventory management?
Inventory management refers to the planning, management and control of stock levels within a company. The aim is to hold the optimum quantity of goods and materials to ensure smooth production and delivery. The aim is to avoid both overstocking and shortages. Efficient inventory management minimizes storage costs and maximizes delivery capability by adjusting stock levels to actual demand.
Core elements of inventory management
Significance for purchasing
Inventory management plays a central role in purchasing, as it has a direct impact on security of supply and profitability. Effective inventory management enables purchasing to avoid supply bottlenecks, reduce capital commitment and increase the satisfaction of customers and internal departments. It enables more precise planning and improves the negotiating position with suppliers through well-founded demand analyses.
Application of inventory management
In inventory management, methods are used to efficiently control stock levels and minimize costs. A key tool is the calculation of the optimum order quantity using the Andler formula, which helps to balance ordering and warehousing costs.
Calculation example
Calculation of the optimum order quantity using the Andler formula:
Given:
- Annual requirement (B): 12,000 units
- Order costs per order (K): 100 €
- Storage costs per unit and year (h): € 5
Andler formula:
\[ Q* = \sqrt{\frac{2 \times B \times K}{h}} \]
Calculation:
\[ Q* = \sqrt{\frac{2 \times 12,000 \times 100}{5}} \]
\[ Q* = \sqrt{\frac{2,400,000}{5}} \]
\[ Q* = \sqrt{480,000} \]
\[ Q* \approx 692.82 \]
Interpretation:
The company should order around 693 units per order in order to minimize the total cost of ordering and storage costs. This optimal order quantity enables efficient warehousing and reduces unnecessary expenditure.
Evaluation and strategic findings
✓ Critical success factors
→ Precise demand planning: development of precise forecasting methods to avoid over- and understocking
→ Digital integration: implementation of an end-to-end inventory management system with real-time data
→ Supplier coordination: Close coordination with suppliers for optimized order cycles and delivery times
⚠ Challenges
→ Volatility: fluctuating market conditions make precise inventory planning difficult
→ Complexity management: increasing variety of items and different inventory requirements
→ Cost optimization: balance between inventory costs and delivery service level
Future trends in inventory management:
"Digitalization is revolutionizing traditional inventory management with AI-supported forecasts and automated reordering processes."
→ Predictive analytics for demand forecasts
→ IoT-based inventory monitoring
→ Blockchain for transparent supply chains
→ Machine learning for dynamic order quantity optimization
◆ Strategic implications
→ Investments in digital technologies for process automation
→ Development of data analytics skills in the purchasing team
→ Development of flexible inventory strategies for various product categories
Conclusion on inventory management
Effective inventory management is essential for a company's success. It not only optimizes stock levels and minimizes costs, but also ensures competitiveness through improved delivery readiness. The integration of modern technologies such as AI and predictive analytics enables more precise demand planning and automated processes. The continuous digitalization of inventory management and close coordination with suppliers are crucial for the future in order to be able to react flexibly to market changes.
