BLOCKCHAIN

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 and demand, merchandise expiration, and other similar issues. Adding to this, the bigger the company gets, the trickier inventory management becomes. This issue further sabotages the security and transparency of inventory management operations.  

IoT application development companies and the best blockchain app development companies are creating solutions for 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 $1,528.3 million in 2021. The increase in revenue proves the need for a 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 storing, ordering, organizing, using, and selling the products 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 accepts incoming shipments and verifies and updates the records.
• Storage: Also known as warehousing, it stores the inventory on the premises.
• Stock Control: It is monitoring 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 is the inspection of inventory to determine whether it meets the desired quality standards.
• Tracking and Monitoring: Tracking and monitoring of inventory and updating associated data.
• ABC Analysis: It segments the inventory items into categories 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 undergoes multiple transactions that must be traced and recorded to determine redundancy for effective inventory management.

Types of Inventory Management

These are the different types of inventory management models used to manage inventory within the premises. Let’s examine them.

Just-in-Time Management

It is an inventory management model developed by Toyota. The model was created to reduce the amount of money required for operation and the wastage of raw materials. The approach was to minimize inventory as per the operation’s requirements. However, this isn’t fruitful during 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

This model has several limitations, including a high implementation cost, accurate and timely inputs, and a lack of flexibility.

Economic Order Quantity

The economic order quantity is primarily focused on minimizing inventory costs. 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 will be relevant for the manufacturing operations, keeping the cost in perspective.

Days Sales of Inventory

Days sales of inventory consider two facets: the average time to finish the inventory and the goods being used. The ratio between these quantities is also referred to as the average age of inventory. This approach aims to figure out the number of days the inventory will last.

Challenges Associated with Inventory Management

Every inventory management model has its own pros. However, several challenges subside (in the inventory management domain) that coincide with the drawbacks of the adopted model. 

Here are some 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 address everything. IoT and blockchain can also 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 demand fluctuates constantly. Overstocking causes companies to lose capital and holding costs while 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 challenging to consistently maintain the flow of the supply chain, which can lead to issues like late deliveries, quality issues, disrupted inventory, etc. 
• Inventory Shrinkage: There can be several reasons behind this, such as theft, damage to inventory, errors in the process, etc. This creates a gap between 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 and visibility, lead time variation, complexity in SKUs (stock-keeping units), 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 can optimize multiple inventory management processes with the capability to track every transaction. This aids heavily in enhancing security and transparency, with no exception. 

By collaborating these two technologies, a blockchain development company can create an inventory management system ready to take on multiple challenges. Some use cases 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 and manage inventory well. RFIDs enable us to detect a single piece in inventory and other associated information with it. Temperature sensors help maintain ambient temperature. In addition, 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 every inventory move, 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 automate multiple inventory operations, such as order fulfillment, invoice processing, inventory restocking, etc. This can be done using smart contracts that can execute themselves with pre-established rules. 
• Streamlining Payments and Audits: Invoice processing is one of the most important use cases. With blockchain, it is possible to conduct audits for the overall inventory. 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, several other use cases and problem statements 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 ability to manually monitor every transaction for inventory management depends on the operation scale. For a small firm, a simple log book might work that shows each movement. However, with the increase in scale, each of these operations becomes unsurmountable. In this situation, a lot is 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. 

Relevant data can be aggregated, and records can be maintained easily using IoT technology and blockchain. Once this data is assessed, the entire inventory transactions are manageable. Record creation at every step makes the operations traceable, thereby increasing security and transparency.

Wrapping Up!

Because of the tons of data generated, inventory management has suffered from the plight of security and transparency. Several IoT app development companies that cater to enterprises 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. Inventory management software can even provide additional insights and the capability to easily monitor every operation related to inventory management.