Importance of Inventory Management
21 Feb

Importance of Inventory Management – 14 Awesome Benefits You should know

Do you know the importance of inventory management? I am sure most of you will say yes! But do you know the full range of benefits of inventory management?

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Inventory Management and control implies the controlling of business stock or controlling the movement of products and services following their demand. It enhances business operations with the effective flow of goods and services

Inventory control is highly beneficial in today’s business world as it plays a vital part in any business success/failure having intense competition within its industry. The benefits of inventory management and the knowledge about its usage are vital for enhancing product quality, improving competitive ability, reducing inventory carrying costs by reducing inventories, service enhancement, and operational flexibility through pull systems. Inventory Management and control provide actions & strategies that are integrated into all management controlling, planning, and processes which are crucial to enhancing and making successful management.

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Effective management and control of inventory are vital aspects of any business operation. This attention to detail is crucial as inventory constitutes a significant portion of cash flow, encompassing both the procurement and sale of stock. Consequently, the impact of Inventory Management and control on the financial aspects of a business cannot be overstated.

Beyond the fundamental financial considerations, Inventory Management and control play a pivotal role in enhancing a company’s competitive edge and overall profitability. The advantages extend to fostering growth and contributing to economic and operational efficiency. By employing various analyses, businesses utilizing Inventory Management and control can gain valuable insights into their operations and make informed decisions.

Why is Inventory Management Important – Below are 14 Benefits of Inventory Management and Control:


  • Inventory control paves for competitive ability
  • Inventory planning improves service level
  • Inventory planning and management reduce storage cost
  • High inventory turnover brings revenues
  • You can utilize warehouse space better
  • Inventory control makes cost accounting activities easier
  • Inventory control is consistent with safety and economic advantage
  • Regular supply at reasonable prices builds customer confidence
  • Inventory holding results in effective utilization of human and equipment
  • Effective inventory control enhances market share
  • Inventory control improves product quality
  • Effective inventory control brings the potential to saving
  • Inventory control avoids costly interruptions in operation
  • An inventory control strategy facilitates purchase economies

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1. Inventory Control Paves for Competitive Ability


The usage of Inventory Management and control benefits inventory control by enhancing market shares thus, paving the way for competitive ability. The best example is Apple’s smart inventory management which gives them a competitive advantage. Commonalities with values, high factor loadings values, and significant mean values are factors taken into consideration in determining business support for competitive strength. These factors undoubtedly demonstrate the importance of Inventory Management and control, enhance market share, and improve competitive ability.


2. Inventory Planning Improves Service Level


It remains a fact that good Inventory Management and power leads to what all business strive for continuity, repeat clients. If you desire your hard-earned clients to come back to purchase your products and services, it is necessary always to improve your service level enough to be able to match customer requests swiftly. Inventory Management and control aid businesses in meeting such demand by permitting you to provide the right levels of hands-on service immediately when your customers require them with the desired lead time, highlighting the importance of inventory management.


3. Inventory Planning and Management Reduces Storage Cost


These benefits of inventory management envisage focusing on Inventory planning and reducing storage costs as you maintain adequate inventories. The central values feature significant factor loadings and commonalities exhibited through proper Inventory Management and control. The factor lowers storage costs and increases revenue by using adequate inventory management and control emphasizing the importance of inventory management.

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4. High Inventory Turnover Brings Revenues


Applying Inventory planning to any business can serve as a bridge to bring in higher revenues. Through proper Inventory Management and control, a company is capable of increasing its profitability. If a business overlooks the benefits of inventory management in its trade, sales, and production, it is possible to hamper the maximization of its operational efficiency. Intrinsically, the inventory’s cost of purchase and production has a substantial effect on gross profit. Using lessened cost of production, a business raises its gross profit. That is why proper inventory planning is required. With all accounts placed as equal, such a company would record superior revenues, which in effect, leads to more profits, again substantiating the importance of inventory management.


5. You Can Utilize Warehouse Space Better


Proper Inventory Management and control involve accounting for all production, purchase, and sale of goods that meet customers’ demand. These benefits of inventory management affect management strategy that supports organizational warehouses in attaining better space management.

If you have an unorganized warehouse, you will always find it difficult to handle your inventory effectively. Several businesses elect to enhance their warehouses by arranging higher-selling products together in areas that are easily accessible within the warehouse. Performing this process aids in speeding up order fulfillment and preserves customers’ happiness.


On the same note, you can find Warehouse Space Optimization: 17 Tactics That Can Be Used to Improve Space useful.


6. Inventory Control Makes Cost Accounting Activities Easier.


Better inventory management is surely going to make your financial controller happier and you can be easily in his good books!

Business owners often develop internal strategies and measures that will guarantee better control and planning of production and sales. Such approaches involve binding every partaker in the business to delivering activities that make Accounting Activities Easier including managers. Usually, these strategies aid such industry to order, account for inventory values, and keep inventory flow, along with assistance on how to control obsolete goods. By executing such plans in inventory planning, several businesses can be able to manage their cash flow well.



To optimize your business cash flow, invest in a powerful inventory system tailored to your needs and adaptable to your business environment. Thoughtfully planned companies save significantly through effective Cost Accounting Activities. Improved Inventory Management and control establish cost benefits, especially in fluctuating financial markets. Enhanced cash flow empowers companies to achieve their business goals.


7. Inventory Control Is Consistent with Safety and Environmental Advantages.


Too much inventory in the warehouse can be a health and safety issue when employees struggle to walk on the shop floor, can not move goods easily and it is falling from the shelves.

Good inventory management leads to inventory reduction which leads to less packaging which leads to less waste and contributes to environmental advantage. For me one of the best reasons to show the importance of inventory management!


8. Regular Supply at Reasonable Prices Builds Customer Confidence


Evidently, with better strategies in place, any given organization can use inventory planning and control to improve its cash flow by providing higher customer service at consistent pricing. Inventory control and planning solution allows small business to gain insight into what products are selling more than others. This step will enable them to adjust their product line and make intelligent business decisions.


9. Inventory Holding Results in Effective Utilization of Human and Equipment


Proper Inventory Management and control solutions save time regarding human resources and equipment usage. Less time expended on managing inventory leads to higher productivity for your business and clients as well. With these benefits of inventory management, your business stays steps ahead of the game and continuously has enough products at hand based on inventory movements.

I have seen this first hand during my days as a Supply Chain Manager, if excess inventory is not your problem and you are hitting your targets, then you can find time to drive Kaizen activities to drive further improvement in the supply chain department.


10. Effective Inventory Control Enhances Market Share


For companies whose scale of operations does not permit the running of several inventories by product line or SKU, the usage of Proper Inventory Management and control solves it. Nevertheless, in some situations, your business size does not matter since roles and policies have to be set up irrespective of the business size.  Such procedures and setup will help govern inventory spending and Enhance Market Share.

Inventory Management handles cash flow. Limited capital restricts large inventory purchases. Proper control identifies needed inventory sizes and enhances market share, freeing up capital for reinvestment.


11. Inventory Control Enhances Product Quality


The use of Inventory Management and control can assist in remarkably improving business efficiency and product quality. These benefits of inventory management would aid in eliminating waste and enhances focus on producing Right First Time or Six Sigma Quality.

It remains a fact that having a good inventory management system leads to better success and repeat customers. If you desire your hard-earned customers always to keep coming, you have to enhance your product quality in the best ways possible.


12. Effective Inventory Control Brings Potential Saving


Proper Inventory Management and control can Bring in Potential Savings as benefits of inventory management. These benefits of inventory management provide businesses with monetary and real-time benefits. There is a debate within controllers if inventory reduction which leads to a reduction of inventory carrying cost, can positively impact the bottom line. For me, the answer is Yes!

The simple logic is if you reduce $100k of onhand inventory, and put this money in the bank to gain interest, which is equivalent to bottom-line benefit.

By monitoring which products bring in more sales and what other potentials they have, your business can save more on every effort with an inventory recount to safeguard accurate records. Good Inventory Management and control strategy also benefit businesses in saving money that could otherwise be lost in slow-moving products. No one can deny this as a top reason to show the importance of inventory management!


13. Inventory Control Avoids Costly Interruptions in Operation


Inventory Management and control are beneficial in limiting the employee’s ability to steal or disrupt your operations.  Often costly interruptions in service in businesses can be averted with proper planning. Deprived of inventory control, companies may be none-the-wiser to such disruption. These benefits of inventory management ultimately improve business profitability. By avoiding costly interruptions, businesses can reduce any ‘hidden’ costs. Showing, the importance of inventory management.


14. Inventory Control Strategy Facilitates Purchase Economies


Good Inventory Management and control aids in Facilitating Purchase Economies and maintaining steadiness in production operations. This approach is down to the maintenance of smooth flows in accessing raw materials. Consequently, there are no shortages experienced during the production process — these benefits of inventory management aid in reducing the risk of loss due to desuetude or deterioration of items, hence, highlighting the importance of inventory management. Such checks are placed on items regularly. Additionally, selling all slow-moving items promptly and maintaining the right stock all facilitate purchase Economies.



I think this 1 min video summarizes the key points of this article very well!


These benefits of inventory management and control are beneficial and good practices for all business types. It is always important to keep a watchful eye on your inventory, and it is still best to do it properly. With these benefits attached to proper inventory management and control, you can regularly, identify and avert any potential inventory challenges and errors. Remember the listed benefits when you plan to enhance your business inventory management strategy.

Please share if you think I have missed out on any benefits to emphasize the importance of inventory management!

Frequently Asked Questions (FAQs)

Why is it so important to carefully manage inventory?

Effective inventory management is vital for businesses. It enables cost control, enhances customer satisfaction by ensuring timely order fulfilment, and contributes to better cash flow management. Proper inventory control reduces waste and prevents tying up excess capital in unsold goods, optimizing operational efficiency. This balance in supply and demand not only streamlines operations but also boosts profitability through reduced holding costs and increased sales.

What are the important functions of inventory management?

Inventory management serves critical functions in ensuring optimal business operations. It facilitates accurate tracking of stock levels, minimizing stockouts and excesses, and aids in efficient order fulfillment. Additionally, it contributes to cost control by optimizing inventory turnover, supports demand forecasting, and enhances overall supply chain efficiency. Proper inventory management leads to improved customer satisfaction through timely product availability and helps prevent financial risks associated with overstock or stockouts.

What are the 5 benefits of inventory management?

1. Optimized Operations: Efficient inventory management ensures the right products are available at the right time, minimizing stockouts and excess inventory.
2. Cost Control: It helps control carrying costs by optimizing inventory levels, reducing holding and storage expenses.
3. Enhanced Customer Satisfaction: Proper inventory management ensures timely product availability, leading to improved customer satisfaction and loyalty.

What are the 4 types of inventory?

1. Raw Materials: Items used to manufacture finished products.
2. Work-in-Progress (WIP): Products in the production process but not yet completed.
3. Finished Goods: Completed products ready for sale.
4. MRO (Maintenance, Repair, and Operations): Supplies and tools used in daily operations but not directly in the final product.


Dr. Muddassir Ahmed, Ph.D


About the Author- Dr Muddassir Ahmed

Dr Muddassir Ahmed is the Founder & CEO of SCMDOJO. He is a global speaker, vlogger, and supply chain industry expert with 17 years of experience in the Manufacturing Industry in the UK, Europe, the Middle East and Southeast Asia in various Supply Chain leadership roles.  Dr. Muddassir has received a PhD in Management Science from Lancaster University Management School. Muddassir is a Six Sigma black belt and founded the leading supply chain platform SCMDOJO to enable supply chain professionals and teams to thrive by providing best-in-class knowledge content, tools, and access to experts.

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