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What is service inventory management?

Updated: Oct 22


The practice of pushing merchandise by accumulating inventories in advance of demand has gone out of favour in recent years. Many businesses have switched to a "pull" model, where they only create products in reaction to genuine demand. These companies have shifted the "push-pull border," or the point where a supply chain transitions from building to forecasting to responding to demand, away from their end consumers. Firms minimise expensive to supply and demand mismatches by reducing the quantity of work performed before real demand is determined.

The fact that services cannot be inventoried is a key concept of service management; without inventory, the position of the push-pull boundary appears to be irrelevant. However, this viewpoint is based on a very restrictive definition of inventory, defined as finished goods waiting for consumers. Inventory can also be used to store work; consumers don't have to wait for it to be completed because the work has been saved.

What is service inventory?

All process stages that are performed before the customer's arrival are included in the service inventory. Service inventories, like physical inventories, allow businesses to protect their resources from demand fluctuations and take advantage of economies of scale while also offering consumers speedier reaction times. Having service inventory allows you to use the client as a resource while also allowing you to automate the process. As a result, companies can provide higher quality, faster response times, and more competitive pricing by employing the right type of service inventory.

The importance of service inventory management

There are many distinct types of service inventory, and a service provider's decision is based on its industry and desired market position. For example, a rheumatologist must write letters to insurers on the status of patients. A form of service inventory is a system that assists in the automatic generation of these letters. In addition, the whole industry of credit rating organisations, which sell customer data and credit scores to financial institutions, is based on service inventory. On the other hand, financial institutions have their service inventory in the preset rules that they apply to various clients based on their financial profiles and credit ratings.

Inventory is classified as an asset and is reported on a company's balance sheet as such. A physical inventory count to identify the amounts on hand or a continuous inventory system that generates an accurate record of each inventory-related activity are both required to develop an accurate balance sheet value. Inventory management is not just an innovative business; it's also necessary for public businesses to comply with SEC rules and the Sarbanes-Oxley Act (SOX). As part of their compliance efforts, companies must demonstrate well-documented, well-understood, and well-controlled supply chain procedures.

Companies have improved their inventory management procedures as a result of complying with SOX. After all, misplacing merchandise is the same as misplacing cash. You don't truly have stock if you don't know how much you have or where it is. Even items in the route are considered inventory, but they are rarely recognised for financial purposes. Inventory management is a crucial component in a company's financial performance because of the investment in manufacturing, storing, and shipping items.

Features of an inventory management system

  • Picking and packaging: Ensures that picking and packing personnel are directed to the appropriate warehouse locations.

  • The shipping department manages bills of lading, invoices, packing sheets, and other relevant papers.

  • Managing locations entails directing the arrangement of products in the warehouse to make the most efficient use of available space and resources.

  • Receiving orders: Directs fulfilment activities by managing incoming orders.

  • Inventory tracking: Maintains a running tally of inventory status for each item or SKU.

  • Supports cycle counting inventory techniques to keep totals up to date.

  • Barcode scanning inputs are managed, and the system is integrated with shipping, accounting, and other systems.

  • Tools for reporting: Generates data that may be used to make tactical and strategic decisions.

How to manage inventory?

The strategies and methods for inventory management will differ depending on the company. After all, a mom-and-pop candle shop in a vacation town isn't expected to keep track of inventory like an automobile company. However, even that modest candle business employs a plan, even if the proprietors are unaware of it. Here are some of the techniques utilised by businesses of varying sizes.

  • The ABC Method is a ranking method for inventory that is based on turnover rates. Category A, for example, is made up of the 20% of goods that produce 80% of the income. Products in categories B and C have inferior performance. The fulfilment and shipping areas of the warehouse should be closest to Class A items. Ongoing analysis will determine when goods should be shifted from one category to another.

  • Depending on the size of the item, it is stored in two places or bins. Items are relocated from the second bin when the first bin is empty. When the second bin is empty, the supply is refilled.

  • Predetermined Order Quantity: When inventory reaches a certain level, a fixed quantity of goods is ordered to replenish.

  • Fixed Period Ordering: Goods are ordered for a specific period. This is a popular strategy for small businesses without advanced systems.

  • Vendor Managed Inventory (VMI): The supplier keeps track of inventory levels and reorders based on sales or a set schedule. This is prevalent in the supermarket, retail, and field service and healthcare inventory deployed ahead of time.


An inventory management system can assist in ensuring that the correct amount of goods is in the right location at the right time. Inventory management has become more complex with the rise of e-commerce, omnichannel fulfilment, and increasing partnerships with national and international trade partners. The finest inventory management systems will not only keep track of items. Still, they will also give actionable business analytics, such as recognising low and high performing products and sending reorder reminders when supplies are running short.

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