IT asset management (ITAM) and inventory management are both useful practices that can benefit any organization using IT. Both of these practices are concerned with the management of IT assets but focus on different things. Inventory management can exist without IT asset management, and in fact, does in many organizations as it has been in existence and in use for a much longer time. The scope is usually greater than just managing IT assets. Conversely, ITAM can’t really exist without some form of inventory management, as this provides a strong base of trusted and accurate information about what assets exist. Before exploring the differences between IT asset management and inventory management, it is first important to understand each practice.
What is IT Asset Management (ITAM)?
ITAM is defined as a set of business practices that join financial(such as depreciating value of IT assets), contractual(in the case of software licenses), and inventory functions (such as inventory management) to support lifecycle management and strategic decision-making for the IT environment. This definition makes it clear that IT asset management, unlike inventory management, is not just about keeping the books. IT asset management systems leverage related processes, including inventory management, to maximize the benefits for an organization.
To understand what IT asset management is, it is first important to define an asset. ITIL v3 defines an asset as anything that could ‘contribute to the delivery of a service.’ ITIL 4 defines an asset as ‘any financially viable component that can contribute to the delivery of an IT product or service.’ It defines IT asset management as ‘the practice of planning and managing the full lifecycle of all IT assets.
IT asset management systems are therefore concerned with managing everything that is used in IT to provide the services through the entire lifecycle of those IT assets from inception to retirement.
It is a business process that is responsible for managing, storing, moving, sorting, arranging, counting, and maintaining an inventory of items both used by the organization and produced by it. Hence, the scope of inventory management is not restricted to managing IT assets.
Inventory management can be applied to items of legislative requirements, such as assets with a value that are included in the company’s accounts, and items that need to be carefully tracked, such as saleable products that it makes and the components that make up the saleable products.
Unlike IT asset management, inventory management has been in use since long, possibly hundreds of years. It is primarily concerned with ensuring that a sufficient quantity of the items is available to enable the business of the organization.
For example, if the organization makes desktop computers, the inventory management system has to ensure that there are always enough components in stock such as cases, CPU boards, and keyboards, to be able to assemble the computer. To do this, it has to keep track of the items it already has, but it also has to track the flow of incoming orders and components, including maintaining a forecast of expected use.
The information provided by inventory management can then be used by IT asset management systems to make strategic decisions. Using the example above, if your inventory management system identifies that there are regular issues with procuring the CPU boards from a particular supplier, IT asset management could be used to make a strategic decision to shift to another supplier.
In IT, inventory management can also be used to track the supply of consumable items such as keyboards, mice, cables, printer supplies, and backup media within the organization. In this type of usage, inventory management systems can help to prevent an organization from running out of these items.
Why is Inventory Management important?
Good inventory management within IT requires a good understanding of the link between supply and demand for your IT components. This is particularly true for consumable items and for IT assets such as software licenses.
If you supply more than the demand requires, then you will have unused inventory to track and will have potentially wasted money. If you supply less, you risk the continuity of your services .
Inventory management can even apply for items that you rarely purchase, such as network routers, as it’s a good idea to maintain spare stock of critical IT equipment that your IT services require.
What are the activities of Inventory Management?
Inventory management, just like IT asset management, involves the application of several different activities. For effective inventory management and to support IT asset management systems, every one of these activities should have your attention.
Analyze every occasion when you ran out of something important, and find out why it happened. Also, look at the stocks you hold of IT equipment, components, and software. Do an analysis to see how old the stock is. This activity in inventory management can help you to get some quick wins by targeting your efforts on aspects where you can quickly get value. Instead of guessing, use the data that you gather to fix issues with how you have previously managed inventory.
2. Demand patterns
Review the usage statistics of IT components for the last few years to identify any peaks or troughs in demand and see if there is a pattern. This will help you to build a model for inventory management that you can use to avoid shortages or excessive stock in the future. One key driver can be the number of new hires into the organization, as these drive demand for IT equipment. By working closely with your human resources function, your inventory management approach can benefit by getting early sight of potential increases and decreases in demand.
3. Inventory and supply costs
It is important that you understand the costs of both the inventory and the costs of managing it. These costs can include various expenses incurred throughout the supply chain, including freight, storage, distribution, and disposal. Review how your current approach to inventory management has impacted these, and identify where streamlining activities or re-negotiating supply deals could lower the costs.
4. Process automation
Inventory management is essentially a set of related workflow processes. With today’s technology and tools, there is no reason to rely solely on manual processes for your inventory management system. Reducing the amount of human intervention in the execution of your inventory management processes by limiting the opportunities for human error. For example, adding barcode tags to your inventory items and investing in barcode readers should eliminate incorrect identification, and speed up data capture in your inventory management.
5. Supplier performance
Inventory is usually sourced from suppliers. Hence, they are an essential part of your inventory management approach. Engage with them on what you are trying to do; they may have ideas that can improve your inventory management. One example is where a supplier will keep stock of regularly used items at your location, still owned by them. You only pay for it when you use it, saving you the costs of excess stock by using best practice techniques.
6. Inventory classification
Different types of IT components will have different patterns of usage and lead time. If you use different categories for different types, then you can tailor how you apply inventory management, recognizing that you need to address different periods of demand for specific types of IT assets. This type of best practice can be readily achieved using inventory management tools.
7. Set category goals
To accompany your inventory management classification, establish appropriate goals for each category so that you can measure and track efficiency. Using this technique will also enable you to track different issues and determine if they are category-specific or are signs of a more significant issue.
8. Prioritize changes
When you first start with inventory management, you might find several areas that need improvement, but it is unlikely that you will have the capacity to deal with all of them at the same time. Review and prioritize issues that can be fixed quickly and cheaply. This could be as simple as creating a buffer stock for items that you regularly run out of, such as toner cartridges.
9. Inventory Management policy
It is important to document and demo how you intend to operate inventory management in a formal policy. This can change over time, but unless it is formally documented, it is highly likely that you will end up with inconsistent ways of managing inventory. The policy should include the responsibilities for different activities, the categories, and any protocol that must be followed.
Virima offers you a set of tools and solutions to address IT’s most critical management challenges and will help you improve the overall health of your estate while enabling your organization to benefit from configuration management, including your CMDB, and from IT asset management. Learn more here.
Virima’s IT discovery, IT asset management (ITAM), and IT service management (ITSM) solutions can help you maximize the value of business processes and service management investments. Virima features can automatically discover and map your critical IT resources and the interconnections that link them to one another, your applications and services, and your users.