Google Play icon

Modern Methods Used to Ensure Effective Inventory Management: Brief Overview

Share
Posted August 7, 2019

What is the best way to keep track of inventory if you are a small manufacturer or maker? Read this guide to find the ideal solution for your business.

Good inventory management is essential for every manufacturing company. To clarify: The term “inventory” includes every item in a company that has the purpose to be sold. That means raw materials, work-in-progress items, and the finished product.

Inventory taking. Image credit: U.S. Air Force, Justin Fuchs (Public Domain) via 419fw.afrc.af.mil

Inventory taking. Image credit: U.S. Air Force, Justin Fuchs (Public Domain) via 419fw.afrc.af.mil

Methods for Inventory Management

Different techniques can be used by entrepreneurs to keep track of inventory. We will look into four established methods: First-In-First-Out (FIFO), Last-In-First-Out (LIFO), Just-In-Time (JIT) and ABC-Analysis. Since they fulfil different needs, each business will have to choose the one that works best for its operations.

First-In-First-Out (FIFO)

By using this method you’ll always ship the oldest inventory in your warehouse first. Especially if you are working with products that have an expiration date, this method could work well for you. However, it requires very good documentation of the inventory in the warehouse, so you’ll always know which product has been there the longest.

Last-In-First-Out (LIFO)

Contrary to the FIFO method, the Last-In-First-Out technique means that you will use the inventory first that has arrived most recently. This inventory technique is mainly used for heavy raw materials that have to be stored in piles, such as sand or bricks. When new materials come in, they will be put on top of the pile and therefore used first.

Just-In-Time (JIT)

When using this inventory method your priority is managing cash flow. This means that you’ll only buy materials when you get an order from a customer. This can work well for you if you are a retailer but could get a bit complicated as a manufacturer. It can be risky when it comes to disruption in the supply chain as this can lead to a delay in your production. Therefore, you should make sure that the inventory and supply chain management work closely together and you have a good relationship with your suppliers.

ABC-Analysis

This inventory method will help to prioritize the items in your warehouse. The letters “ABC” refer to three categories of items in your company. Category A stands for inventory that is very important and valuable for your business. The letter B classifies items that are of average importance and category C describes relatively unimportant items. A common method for inventory management with the ABC analysis is the Pareto Analysis, which is also called the 80/20 rule. According to this principle, 80 percent of the value of the inventory is held in 20 percent of the material (category A).

Effective Inventory Management

To review the inventory in your shelf, you can either remember the amount of items (which only works if your business has a small amount of stock), use a checklist to count your items (for example an Excel spreadsheet) or use software for professional manufacturing inventory management. This tracks all kinds of inventory and reassigns everything depending on its stage in the production cycle.

As we are living in the digital age, it is necessary to automate some of the business operations to keep up with competitors. Therefore, looking into professional solutions can help you make your inventory management more effective.

Featured news from related categories:

Technology Org App
Google Play icon
83,228 science & technology articles