Inventory management refers to the process of managing the stocks of finished products, semi-finished products and raw materials by a firm. Inventory management, if done properly, can bring down costs and increase the revenue of a firm.

How much one should invest in inventory management? The answer to this question depends on the volume and value of inventory as a percentage of the total assets of a firm. The importance of inventory management varies according to industries. For example, an automobile dealer has very high inventories, sometimes as high as 50 per cent of the total assets, whereas in the hotel industry it may be as low as 2 to 5 per cent.

The process of inventory management is a continuous one and there are various kinds of solutions available. It is advisable to employ specialized staff for inventory management.

The inventory management process begins as soon as one has started production and ordered raw materials, semi-finished products or any other thing from a supplier. If you are a retailer, then this process begins as soon you have placed your first order with the wholesaler.

Once orders have been placed, there is generally a short period of time available to a firm to put an inventory management plan in place before the supplies are delivered. Inventory management helps a firm to decide in advance where these supplies should be stored. If a firm is getting supplies of small-sized goods, it may not be much of a problem to store them, but in the case of large goods, one has to be careful so that the warehousing space is optimally utilized.

From invoices to purchase orders, there is lot of paperwork and documentation involved in inventory management. Several software programs are available in market, which help in inventory management.