Different Types Of Inventory Systems You Should Know About
Every business has to deal with inventory management irrespective of the field they are in. Inventory management means that you have to deal with a process that includes ordering, storing, and profiting from the goods that make their way from the manufacturer to the consumers.
As simple as it sounds, many crucial steps need to be taken to keep the inventory organized and efficient. It is a critical aspect to maintain the equilibrium between all the moving parts of the storage system. As per a retail establishment study, the inventory is accurate about only 63% of the entire time.
To beat statistics like these, both inventory management strategy and your inventory software need to be well thought. Different plans are required depending on different types of factors like items they store or the regulations they follow concerning the industry they are in\
Types Of Inventory Management Tools Every Company Deals With
There are few types of inventory that all companies have to deal with at various points of their existence:
- Work in Process: Raw materials waiting to be processed by the system
- Finished Goods – Items ready to be packed for delivery
- Transit Inventory – Items that are needed to be delivered from one place to another
- Buffer Inventory – Inventory kept having enough stock in case there is a change in demand
- Anticipation Inventory – Inventory kept in excess for specific products
- Cycle Inventory – Sometimes when inventory maxes out then using excess material can be reproduced
Most businesses out there deal with the varying inventory demands as they grow. Utilizing a sound inventory management system will help in keeping stock in accordance to the storage practices.
Main Types Of Inventory Management Systems
Many different inventory tools are present today, but it all boils down to the two main types of popular methods many businesses use today. That two popular strategies used are periodic and perpetual inventory methods:
Periodic Inventory Management
As their name indicates, both the periodic and perpetual methods differ in terms of timings when the inventory data is entered into the system. In the case of the periodic inventory management system, the information is uploaded at a certain point, usually after about a year, while in the case of the perpetual system it’s done on a continuous basis Organizations that have small amounts of products to handle, employ this method of inventory management. The method proves to be useful as the management of inventory is as complicated as the larger operations. But the technique also has some drawbacks:
- It fails to provide information on the goods sold during the period where the count doesn’t occur.
- The cost of the goods sold must be calculated during the period when the count doesn’t occur. This requires a significant amount of adjustments when the actual count takes place.
- The inventory that is no longer of any use and scrap loss cannot be accounted for when the count doesn’t occur.
Despite all the drawbacks, the periodic inventory management method helps many companies save a lot of the expenses. This method is only efficient if used by smaller companies that do not have to worry about any large cycle counts that they need to conduct to stay on top of their inventory. For companies that have to handle a large number of inventories, there is perpetual inventory management:
Perpetual Inventory Management
Perpetual inventory management is perfect for companies that deal with a large number of inventories. As the name implies it continuously keeps updating your inventory records. It reduces the number of physical counts and keeps the inventory up to date whenever any changes are made. Thus, it automates the task of employees having to manually update the stock levels and save both your time and money.
However, using this method efficiently requires you to have a reliable inventory management system with strong tools available to manage everything. Although having all these comes with benefits and also some downsides.
- It costs extra to maintain and operate this type of specialized equipment
- The system also needs timely updates to work efficiently. This adds downtimes that can affect your business.
- Items scanned improperly; stolen goods can impact the inventory records, which they won’t match up to that of the system records.
Irrespective of the type of business you own, the way you approach inventory management makes all the difference to your long term growth. Whether you have a small business with less inventory or a large business but a lot of complex stock to work with, you need an efficient strategy to keep things moving efficiently.
There are many inventory management software out there, but if you keep your exact needs in mind, you can find the perfect fit.\
I am Greg Wilson, a Content Writer working with GoodFirms, a research and review platform for service and software companies. I am passionate about blogging, creative writing, social media, and content marketing. I write blog posts for GoodFirms about eCommerce softwares, Cloud computing, IoT development, and many more such categories.