Traditional Inventory Systems
Traditional inventory management has largely been phased out by technologically advanced, software-driven systems. However, some businesses can use old-school ordering, shipping and storage procedures to their benefit. They rely on hand-counted or electronically reported stock levels, manual order placement and storage. Understanding the traditional flow of inventory from suppliers to customers can help you decide whether that time-tested method is right for your business.
Agreements with suppliers are an important starting point in a traditional inventory system. The goal is to avoid paying full price for incoming inventory. Look to secure price contracts and discounts in exchange for consistent orders over specific periods. Since traditional systems lack the hyper-efficiency of just-in-time systems, it's important to cut costs by establishing mutually beneficial, long-term relationships. Try to cultivate a small number of complementary suppliers to make sure you have a consistent source if one supplier can't deliver on time.
Stock levels must be monitored regularly in a traditional inventory system as the first step in the reordering process. Perform counts at intervals that make sense given your turnover trends. For example, if you turn over inventory in an average of two weeks, consider checking stock levels every week to find out what's running low. If you use a point-of-sale system tied into your accounting system, run inventory reports directly from your accounting system to save time. However, audit your actual inventory levels regularly with hand counts to ensure accuracy. Adjust your reorder points over time to increase your ordering efficiency.
Businesses place orders manually in a traditional inventory system via phone, email, fax or an online system. The manual nature of this process sets it apart from modern technology-driven systems. In a just-in-time system, for example, integrated software housed by suppliers and customers both places and processes orders without employee input.
Warehousing is a significant element of traditional inventory management when it comes to cost. The way order-placement and processing traditionally work creates the need to have excess inventory on hand. That means having warehouses to store goods until they can be shipped to customers. Perishable, refrigerated or hazardous goods require additional care and therefore additional expense. Cost disadvantages also include extra property taxes, security and safety systems, warehouse personnel, theft and damaged goods.