Inventory systems are designed to help a business keep track of its merchandise, including where it is stored and how it is sold. Inventory moves in a complex cycle between manufacturers, storage rooms, shelves and consumers. Some inventory that does not sell must be discarded, while inventory that does sell well must be re-ordered at the right time to minimize to storage costs but meet demand. Businesses use a number of different tactics for inventory control, which have steadily advanced with inventory management technology.
Manual methods are the oldest and simplest inventory system. Essentially, business managers simply count the merchandise they have. If certain types of inventory are looking low, then they order new merchandise from their suppliers. Even in manual systems, businesses typically use basic formulas to decide when inventory is running low. The manual system is inexpensive and very easy to teach, making it ideal for small businesses that deal in only a few types of merchandise, especially if it is supplied by local producers.
Batch-based systems divide the inventory up into different groups and use these groups to make decisions on inventory management. For instance, a business may choose to divide its inventory between a bin back in storage and the units on the shelves. When the bin is emptied in storage, the business knows it is time to re-order products. Other businesses use more complex systems: they divide inventory in A, B, and C groups based on how well it is selling. The A inventory is repurchased frequently, while B and C inventories are cycled more slowly, and lower groups of inventory may be dropped entirely.
UPC stands for universal product code, a popular bar code system, especially for larger businesses. The bar codes are used to track products as the enter the company and when they are sold to customers. Using bar codes makes it easy for companies to identify where lost products belong, and allows them to manage shipping and stocking procedures more effectively, making bar codes ideal for large amounts of merchandise that must be frequently replaced.
RFID, or radio frequency identification, is an emerging technology that is spreading throughout the inventory management industry. This system uses tags that emit specific radio frequency patterns which can be picked up by receivers and translated to product information. This allows companies to track products remotely from shipping through selling, even tracking product movement around stores. This makes it easy to stop pilfering, judge consumer buying habits and immediately order new products when necessary. It is still an expensive option, and is used most often for larger products or pallets.
- ClockWork Accounting: Different Types of Inventory Control Systems
- Masao Nakamura, Sadao Sakakibara and Roger Schroeder. "Adoption of Just-in-Time Manufacturing Methods at U.S.- and Japanese-Owned Plants: Some Empirical Evidence," pages 230-231. IEEE Transactions on Engineering Management, 1988.
- Electronic Code of Federal Regulations. "Regulation S-X, 17 CFR Part 210: Sec. 210.5-02 Balance sheets." Accessed Aug. 1, 2020.
Tyler Lacoma has worked as a writer and editor for several years after graduating from George Fox University with a degree in business management and writing/literature. He works on business and technology topics for clients such as Obsessable, EBSCO, Drop.io, The TAC Group, Anaxos, Dynamic Page Solutions and others, specializing in ecology, marketing and modern trends.