Inventory management is one of the most important aspects of industries like manufacturing, retail, FMCG, etc. Without inventory management, the whole supply chain can come to a standstill. This could mean disrupted supply & demand, expiration of merchandise, and many other similar issues. Adding to this, the bigger the company gets, the trickier inventory management becomes. This issue further ends up sabotaging the security and transparency of inventory management operations
Right now, IoT application development companies and best blockchain app development companies are creating solutions to handle these issues. They are bridging the gaps in inventory management and keeping an acute eye on forthcoming transactions. In fact, as per Future Market Insights, the revenue of the inventory management software market totaled at $1,528.3 million in 2021. The increase in revenue proves the requirement of the solution in the domain. To further explore this discussion, we’ve written this article.
Therefore, let’s start…
What is Inventory Management?
Inventory management is the process of storing, ordering, organizing, using, and selling the products available in the company’s inventory. The idea behind inventory management is to manage raw materials, components, products, etc., and provide warehousing services.
Different Operations of Inventory Management
Below are the different operations that are associated with inventory management. Let’s check them out:
- Receiving: It is the acceptance of incoming shipments, verification, and updation of the records.
- Storage: Also known as warehousing, it is used to store the inventory on the premises.
- Stock Control: It is the monitoring of stock levels and making decisions for replenishment.
- Order Processing: It is the picking of an item and preparing it for shipment
- Packaging: It is the packaging of the inventory for shipment.
- Quality Control: It is the inspection of inventory to foresee whether it meets the desired quality standards or not.
- Tracking and Monitoring: It is the tracking and monitoring of inventory, and updating associated data.
- ABC Analysis: It is segmenting the inventory items into different categories of A, B, and C.
- Inventory Forecasting: Forecasting the future needs of the inventory.
- Return and Excess Inventory Management: Handling the return process and foreseeing the excess items to avoid obsolete inventory.
These are the number of processes that are catered to within an organization. Each of them undergoes multiple transactions that are to be traced and recorded to figure out redundancy for effective inventory management.
Types of Inventory Management
These are the different types of inventory management models that are used to manage inventory within the premises. Let’s have a look at them.
It is an inventory management model that was developed by Toyota. The model was created to reduce the amount of money required for operation and reduce the wastage of raw materials. The approach was to minimize inventory as per the requirement of the operation. This however isn’t fruitful during the spikes when the demand is high.
Materials Requirement Planning
Materials requirement planning is an inventory management model that calculates the amount of raw material and other components required beforehand for manufacturing. This process happens primarily in three steps:
- Assessing the existing inventory
- Identifying the need
- Creating a purchase order
There are several limitations to this model which are high implementation cost, accurate & timely inputs, lack of flexibility, etc.
Economic Order Quantity
The economic order quantity is primarily focused on minimizing the inventory cost. It refers to ordering the ideal quantity of inventory that covers holding costs, shortage costs, and order costs. The model is primarily tasked with adding the number of units that’ll be relevant for the manufacturing operations keeping the cost in perspective.
Days Sales of Inventory
Days sales of inventory keep two facets in mind i.e. the average time to finish the inventory and the goods being used. It is the ratio between these quantities. It is also referred to as the average age of inventory. The idea of this approach is to figure out the number of days the inventory will last.
Challenges Associated with Inventory Management
Despite the fact that every inventory management model has its own pros. There are several challenges that subside (in the inventory management domain) that coincide with the drawbacks of the adopted model.
Here are some of the challenges that are omnipresent in more or less quantity with each adopted model. Some of these challenges are fixed with the adopted model but they don’t cater to everything. Adding to it, IoT and blockchain can help keep a keen eye on these processes and manage these challenges overall.
Let’s check them out:
- Overstocking and Understocking: Keeping a balanced inventory is undoubtedly a challenge especially when demands go through constant crests and troughs. With overstocking, companies lose capital and holding costs. Understocking leads to lost sales and less customer satisfaction.
- Forecasting: Considering the fluctuating demands, it is almost impossible to put a number to an accurate demand forecast.
- Supply Management: It is a challenge to consistently keep the flow of the supply chain leading to issues like late deliveries, quality issues, disrupted inventory, etc.
- Inventory Shrinkage: There can be several reasons behind this such as theft, damage of inventory, errors in the process, etc. This creates a gap between the demand and supply.
- Warehouse Constraints: Limited storage space is an issue that forces businesses to keep the inventory to a limit.
Aside from these challenges, there are plenty more such as inventory tracking & visibility, lead time variation, complexity in SKUs (stock keeping unit), obsolete inventory, etc. which can be improved using IoT and blockchain technology.
IoT and Blockchain in Inventory Management
IoT and blockchain are transformative technologies. They have the capacity to optimize multiple inventory management processes with the capability to track every transaction. This aids heavily in enhancing security and transparency with no exception.
By using the collaboration of these two technologies, blockchain development company can create an inventory management system that is ready to take on multiple challenges. Here are some use cases that can utilize IoT and blockchain for inventory management.
- Real-time Tracking: With IoT devices such as RFID tags, temperature sensors, GPS trackers, etc. it is possible to keep track of the inventory and manage them well. RFIDs enable us to detect a single piece in inventory and other associated information with it. Temperatures sensors help in maintaining ambient temperature sensors. Adding to it, GPS trackers can be used for tracking inventory during transportation.
- Better Visibility to Supply Chain: The more sorted the supply chain is, the more sorted the flow of inventory. IoT devices keep track of this flow during the logistics cycle and help you identify bottlenecks.
- Predictive Maintenance: With the collaboration of AI, IoT, and Blockchain, it is possible to monitor each and every move of inventory, its perishability, maintenance cycle, and multiple reasons behind the expiration or breakdown. This data can be used with AI algorithms to create AI models with the power of predictive maintenance.
- Contract Formation: Blockchain technology can be used for automating multiple inventory operations such as order fulfillment, invoice processing, inventory restocking, etc. It can be done using smart contracts that have the capability to get executed by itself with pre-established rules.
- Streamlining Payments and Audits: Invoice processing is one of the most important use cases that is there. With blockchain, it is possible to conduct audits for the overall inventory. Adding to it, this can also streamline payments considering every transaction is traceable and transparent as blockchain creates logs of data with each transaction figuring out redundancies.
Aside from this, there are several other use cases and problem statements that can be catered to with the collaboration of these technologies. With IoT and blockchain in terms of application, you are simply limited by imagination to create solutions that can strengthen the entire ordeal of inventory management.
IoT and Blockchain aiding in Security and Transparency for Inventory Management
The capability to monitor every transaction for inventory management manually depends on the scale of operation. For a small firm, a simple log book might work that shows each and every movement. However, with the increase in scale, each of these operations becomes simply unsurmountable to comprehend. In this situation, a lot of things are lost and the gaps in existing challenges widen.
With multiple IoT sensors and the capability of blockchain to trace everything, the increase in security and transparency is a by-product. Imagine an inventory similar to Amazon or even a company with a scale that is 10 times less. The number of transactions happening would be in the 100s and 1000s. These many transactions can’t be managed manually. Aside from this, there are various challenges and problems like theft, expired inventory, poor quality inventory, etc. Adding to it, there are logistical challenges as well.
By using IoT technology and blockchain, relevant data can be aggregated and its records can be maintained with ease. Once this data is assessed, it makes the entire inventory transactions manageable. Adding to it, the creation of records every step makes the operations traceable, thereby, increasing security and transparency.
Inventory management has been suffering from the plight of security and transparency because of tons of data generated. Several IoT app development companies that cater to enterprise have combined these two technologies to provide a complete solution. With these techs in place, the capability to oversee every transaction becomes easy. With the inherent capability of IoT to aggregate data and blockchain to create records, access to data is simply a click away. With inventory management software, it can even provide additional insights and the capability to monitor every operation related to inventory management with ease.