How you manage your inventory has a big impact on how you run the rest of your business. That’s why I’d like to explore four inventory control methods to help you figure out which one will work best for your business.
This is probably the simplest way to manage your inventory. Basically, you set a maximum amount and a minimum amount of inventory to keep on hand. When the inventory level reaches its minimum, you order more, though you’re careful not to exceed the maximum amount.
This system works well for many types of companies. If you’re a retailer and you sell a lot of inexpensive products, you can use the Minimum-Maximum System just as well as a manufacturer who uses a lot of small parts to build their end products. It’s also a good fit for businesses with a lot of perishable items, like food and medicine, and they want to cycle through them as quickly as possible.
Minimum-Maximum System
This is probably the simplest way to manage your inventory. Basically, you set a maximum amount and a minimum amount of inventory to keep on hand. When the inventory level reaches its minimum, you order more, though you’re careful not to exceed the maximum amount.
This system works well for many types of companies. If you’re a retailer and you sell a lot of inexpensive products, you can use the Minimum-Maximum System just as well as a manufacturer who uses a lot of small parts to build their end products. It’s also a good fit for businesses with a lot of perishable items, like food and medicine, and they want to cycle through them as quickly as possible.
Two-Bin System
The Two-Bin System has two stockpiles of products: one for normal operations and one for backup use only. Normally, you go to the primary bin to find the product you’re looking for to fill a customer order. But once that bin is empty, you use the backup bin while you wait to receive an order of more products to replenish your primary supply. If you face supply problems or demand for your products is sporadic, the Two-Bin System may be a good inventory system for you. This may not work so well for food producers or hospitals, since you’ll basically be setting aside some products that can’t be sold until all the others are gone. That increases the risk of spoilage. However, it could be a good system for retailers, wholesalers and manufacturers of electronics, books, toys and other products that are less prone to decay.
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