What is Inventory Management? A Complete Overview

A significant chunk of a construction project’s budget is put into resources.

Contractors put a lot of money into the materials and supplies required for the project.

Construction inventory management plays a significant role in managing these supplies and materials. 

Inventory management itself has a substantial impact on the project’s timelines and budget adherence.

This is why it is essential to start with the basics better to understand inventory management techniques, processes, and more.

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What is Inventory Management?

Start with the most crucial question: what is inventory management?

Inventory management is a business function that involves overseeing the flow of goods.

This flow of goods starts from the manufacturers and moves down to the warehouse and point of sale facilities.

This process ensures that the company has the proper inventory at the right time to meet the demands of a project.

Inventory management encompasses various processes, including 

• Tracking inventory levels
• Managing stock replenishments
• Analyzing data to make informed decisions. 

Effective inventory management helps businesses avoid stockouts and overstock situations, balancing supply with demand and optimizing operational costs.

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Types of Inventory in Construction

While there are many inventories, three types are mainly used in construction. These include:

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Building Materials

In any construction, construction materials are the framework or can be referred to as building blocks.

This category may include all materials used for construction, ranging from bricks, cement, steel, wood, and electric wires, among other parts peculiar to each construction phase.

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Tools and Equipment

Generally, construction tools and equipment will include a comprehensive raw material that is essential in the completion of the projects.

This ranges from welding equipment to significant structures such as cranes, which play a significant role in construction work.

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Consumables

Consumables are considered essential in construction works, although many people may not attach much value to them, noting that they are used daily in construction.

This category consists of commodities such as nuts and bolts, which are used in the assembly and holding of structures, welding rods for fabrication activities, and security instruments such as helmets and goggles, and detergents, among others, which are crucial in keeping up of an effective and secure working environment on site.

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Inventory Management Process

Moving on after answering why is inventory management important?

It is vital to understand the inventory management process.

The inventory management process involves the following steps.

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Inventory tracking

This includes making and maintaining records of stores in real-time. 

Tracking is crucial in a bid to help determine the availability of the stocks, hence helping to avoid situations where the bulk of the stocks are stocked up or run out of stock. 

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Regular inspections

Backchecks are an essential aspect of inventory management that helps point out anomalies and possible problems. 

Physical checks assist equipment managers in confirming that the physical inventory tallies with the recorded one and that products are in good shape. 

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Monitoring stock levels

In the continuous monitoring framework, it is easier to maintain a balance between supply and demand statistics.

It also involves tracking inventory turnover rates and the proper re-order point for replenishing inventory. 

An asset tracking software is a great way to monitor assets.

Clue’s asset tracking software offers real-time insights not just into the equipment on site but also helps track assets and stock levels with barcode tracking.

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Reporting and analytics

Preparing reports and analyzing information help in making adequate strategic choices. 

Sales reports may contain facts on inventory position, rate of sales, and supplier credibility, which enables providing forecasts and planning. 

Did you know?

Clue’s reporting and analytics greatly help any project manager looking to optimize their equipment and inventory management.

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Support

Inventory management is supported through various activities and features that can automate many processes, including control and monitoring. 

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Inventory Management Techniques

Inventory management involves various techniques, some of which are beneficial for construction. These techniques include.

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Material requirement planning

MRP centers on the timing of purchasing and acquiring materials according to production needs. 

In other words, it assists in identifying the requisite quantities of stock for production without overstocking. 

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Just in time

JIT is a system of procurement where inventory is procured in the process of production or sales on an as-needed basis. 

This helps avoid cases where inventory is held for long or stays in the bin all the time, thus avoiding overstocking. 

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ABC analysis

This technique of Inventory management divides the inventory into three classifications.

These classifications are A, B, and C, depending on their priority and usefulness. 

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Class A items are expensive but relatively used more rarely than other items.

Class B items are of middle cost and are used more frequently.

Class C items are low-cost but are used much more frequently than even Class B items. 

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This assists in directing the efforts towards the right stocks that need the main focus in the management process.

Minimum order quantity

MOQ stands for the minimum amount of stock that has to be ordered. 

It helps control procurement expenses and assess affordable order quantities. 

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How Does Construction Inventory Management Differ from Other Inventory Management Systems?

Construction inventory management is quite different from general inventory management due to the peculiarities of construction works. 

Some of the construction inventories comprise timber, cement, and equipment specific to construction projects and can significantly differ from one project to another. 

Key differences include

• Project-Specific Needs: Construction inventories are project-specific, cutting across various products needed in any construction project. Therefore, inventory tracking is necessary.
• On-Site Storage: Whereas most inventory systems are characterized by network centralization and material warehousing, construction inventory management entails on-site storage. This makes it necessary to manage inventories across different places efficiently and, thus, other conditions.

• Short-Term Usage: Construction materials are utilized rapidly, so they are not expected to have a long life span. This means that time must be well managed, especially in procurement and delivery, to avert hitches on time-bound projects.
• Coordination with Project Management: In construction inventory management, management must closely relate to construction schedules and milestones to supply the kind of inventory that may help construction proceed as planned. 

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What are Some Benefits of Inventory Management Systems?

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Did you know? 62% of business finances are affected due to failure in inventory tracking. Proving the importance of inventory management.

Some main benefits of inventory management include the following.

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Improved Accuracy

From the conventional methods of handling inventory, automation, and real-time tracking eliminate some of the discrepancies that may arise due to human intervention. 

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Enhanced Efficiency

Efficiency is achieved in ordering, data accuracy in stock control, and other aspects, which contribute to efficiency gains in chief operations. 

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Real-Time Data

If the real-time inventory data is managed effectively, then decision-making and planning for the fluctuations in demand can be made effective. 

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Reduced Carrying Costs

Control of inventories ensures that there are no extensive inventories held at any one time, hence minimizing costs that would be incurred in holding inventories, such as storage and insurance costs. 

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Improved Cash Flow

The former suggests that by achieving the right inventory quantities in stock, businesses can relieve money that could be tied up in unsold products. 

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Better Forecasting

Better demand forecasts arise by enhancing the use of advanced analytics and historical data to develop better inventory planning.

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Enhanced Customer Service

Accuracy in stocking enables products to be available when required, hence enhancing customer satisfaction and loyalty. 

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Streamlined Order Fulfilment

Efficient inventory systems facilitate faster and more accurate order processing and delivery.

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Reduced Waste

Proper inventory management reduces the likelihood of obsolescence and spoilage, leading to less waste.

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Detailed Reporting

Comprehensive reporting tools provide insights into inventory performance, helping businesses make informed decisions and identify areas for improvement.

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Better Supplier Management

Effective inventory systems support better communication and coordination with suppliers, leading to improved procurement practices and stronger relationships.

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What are the Challenges of Inventory Management?

While the system has its benefits there are still, some challenges that come with inventory management. These challenges can range from mid-level to high-level issues in the construction project.

Some of the main challenges of inventory management include.

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Stockouts

Lack of stock can result in loss of sales and dissatisfaction. The proper management of stock to avoid the risk of running out of stock on one hand, but at the same time not ordering too much stock on the other. 

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Overstocking

The use of capital that could have been used in other areas hence incurring other expenses of holding stock.

Overstocking can also result in the wastage of inventories that may have been there for a long time that become obsolete. 

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Inventory Accuracy

Proper inventory records are critical for any company. Stockouts can result from disparities between stored physical stock and recorded data, which can create working difficulties. 

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Demand Forecasting

Demand forecasting remains an essential yet quite tricky aspect of the inventory management process since, it helps it to avoid both stockouts.

At the same time, it must ensure that it does not hold too much stock, which would be equally unprofitable. 

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Supply Chain Disruptions

These disruptions may, in turn, affect inventory and project schedules if, for instance, there is a delay or shortage of supplies. 

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High Carrying Costs

Other costs associated with inventory storage include; Storage, insurance, and taxes. 

Controlling these costs is important if one is to be profitable, which explains why cost management is a major facet of project management. 

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Inventory Visibility

One of the most critical aspects of successfully managing a supply chain is the ability to get a real-time update on the stock situation of different stores. 

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Complexity of Multi-Location Management

Inventories need to be managed together at different locations and integrated for better working. 

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Perishable Goods Management

Regarding perishable products, stock management entails acknowledging and arranging for their expiry and rotation. 

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Integration with Other Systems

Another aspect is that inventory control should be connected with other systems, such as accounting and procurement. 

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Data Security and Privacy

Keeping inventory data away from unauthorized divers’ access and complying with the rules and regulations of data protection is vital for business data protection. 

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Handling Returns and Reverse Logistics

Returned goods handling is part of reverse logistics. 

This includes accepting returns, refurbishing, restocking, or dealing with faulty products, which is not easy or does not involve mere money swallowing. 

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What Should You Look for in a Construction Inventory Management Software Solution?

We have learned from everything discussed above that inventory management is essential. 

We also know that reducing stock-outs and overstocks can lower inventory costs by 10%. But how can it be done?

While managing inventory may seem daunting for many project managers, it doesn’t have to be.

With excellent construction equipment management software, most project managers can easily handle inventory and site tasks.

What should you look for in inventory management software? Well, here are a few things to start you off.

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Real-Time Tracking

Real-time inventory tracking is critical to monitoring the flow of materials and equipment on construction sites.

Therefore, it is essential to look for software that facilitates real-time tracking.

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Integration with Other Systems

Ensure the software interacts with other systems, including the project management, accounting, and procurement systems.

This integration is vital as it allows all the data collected from various sources to be unified.

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Mobile Access

Mobile access helps the on-site employees enter the records or stock, check the records to know the stock level, and order restocking from any position. 

It is a plus if the software provides mobile access, which means you can access information anywhere.

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Reporting and Analytics

Reporting every aspect of the inventory, usage, and projects also allows for a deeper analysis of ITC's needs. 

Your software must provide all the necessary information regarding inventory, including in-stock and out-of-stock items, as well as information on pricing and suppliers.

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Inventory Valuation and Visibility

Correct inventory visibility and valuation should be evident in Inventory management software to enable sound financial planning. 

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Multi-Location Support

Inventory management that involves working with several construction sites or locations requires support for managing the materials and equipment. 

As a contractor managing multiple sites, you need the software to gather data from various sites and provide support where needed.

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Barcode/RFID Scanning

Scanning systems such as barcodes or RFID enhance inventory tracking capabilities, minimize the chances of errors, and save time when typing in details. 

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Purchase Order Management

It is essential since it enables tracking of orders, managing the supplier, and ensuring delivery of materials on time. 

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Supplier Management

Using the software to manage supplier information and orders and track their performance should be possible. 

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Alerts and Notifications

Ensure that the software provides specific affairs.

These affairs can be low stock quantities, status of orders, and other events resulting in enhanced inventory control, are possible. 

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Wrap Up

Effective inventory management is vital for a construction project.

The construction industry has its own set of challenges and requirements for managing materials and types of equipment across multiple sites.

Most project managers can efficiently address the challenges by understanding inventory management's core principles, techniques, and benefits.

This can help businesses achieve better control over their inventory, improving operations efficiently. 

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FAQs

How to control inventory in a warehouse?

To control inventory in a warehouse, you should:

• Implement inventory management software for real-time tracking.
• Use barcode or RFID systems to reduce manual errors and speed up processes.
• Conduct regular physical audits to reconcile with system records.
• Set reorder points to trigger automatic reordering and prevent stockouts.
• Optimize storage by arranging inventory for better accessibility and reduced handling time.
• Monitor inventory turnover to gauge efficiency and address overstocking or obsolescence.
• Forecast demand using historical data and market trends for accurate inventory planning.
• Maintain strong relationships with suppliers for reliable delivery and better terms.

How to be a good inventory manager?

To be a good inventory manager, you should:

• Stay organized with meticulous record-keeping and a tidy workspace.
• Communicate effectively with suppliers, sales teams, and warehouse staff.
• Understand and analyze inventory data for informed decision-making.
• Stay updated with industry trends and be adaptable to new technologies and best practices.
• Develop strong problem-solving skills to address inventory issues proactively.
• Train your team regularly to ensure consistency and accuracy in inventory procedures.

What are the three main methods of taking inventory?

The three main methods of taking inventory are:

• Periodic Inventory System: Inventory is counted at specific intervals, which can be less accurate in real-time but more straightforward to manage.
• Perpetual Inventory System: Inventory is tracked continuously through an integrated system, providing real-time and accurate information.
• Cycle Counting: Inventory is counted on a rotating basis throughout the year, maintaining accuracy without disrupting operations.

What are the four functions of inventory management?

The four functions of inventory management are:

• Stock Control: Maintaining optimal inventory levels to meet demand without overstocking or running out of stock.
• Order Management involves handling the ordering process, including placing orders, managing lead times, and ensuring timely delivery.
• Storage Management: Efficiently organize and store inventory to maximize space utilization and minimize handling times.

Demand Forecasting: Predicting future inventory needs based on historical data, market trends, and sales forecasts to align inventory levels with expected demand.