What is the best way to manage our inventory? This question is very common when meeting new clients for the first time. At MCDA CCG we work with you and assist you in making the best decision for your individual business situation. In this post we will list out the most common inventory control methods and identify its unique strengths and weaknesses.
There are four main inventory control methods that will be considered as part of our analysis:
- ABC System
- Min-Max System
- Two-Bin System
- Order-Cycle System
The following is an analysis of these four popular methods of inventory control. We will define what each one is and then address its unique strengths and weaknesses.
ABC SYSTEM
The ABC system includes three groups of products. The first group “A” includes large, costly products; the second group “B” includes somewhat less-costly products; and the third group “C” includes small, cheap products. The ABC System focuses on product types, not quantity. If your business utilizes an inventory tracking software, you will be able to use this system just fine. The ABC system will help you know how long it will take to reorder certain products, based on which group they belong to.
MIN-MAX SYSTEM
The Min-Max System is the simplest method of inventory control. Simply put, you draw two lines, which represent a minimum amount of inventory and a maximum amount of inventory. When stock of a certain product reaches the minimum line, it is time to reorder. However, you can’t order more than the maximum line set. The simplistic approach of this method can be both a good thing and a bad thing. It is easy to use, but can easily leave you with overstock or shortages if you aren’t careful.
TWO-BIN SYSTEM
This system as its name suggests includes two bins. One bin with products you sell day to day, and another bin with products that are sold only when the first bin is empty and an order has been placed to refill it. This is also a fairly simple approach though it still requires a lot of work. Be sure to rotate through the backup bin fairly often and try not to stock up on products or your carrying costs will rise.
ORDER-CYCLE SYSTEM
This system has you go through your inventory and check product levels every 30, 60, or 90 days. You order more products that you suspect will sell out before the following scheduled inventory check. This is in our opinion the worst of the four inventory control methods. It is filled with danger. If you are only looking at your inventory levels every 30 days or so, you are likely run into overstock problems or shortages. We recommend steering clear of this system or method.
The ultimate decision on how to best control your inventory is up to you. No matter what method you use, you should also be utilizing an inventory management software. This allows you to have the facts you need to make smart ordering decisions and keep inventory control functioning at a high optimized level.
For assistance in determining the best fit for your business contact us today. At MCDA CCG we can also implement a strong inventory management software, and standards to allow your business to excel! Contact us below by completing the form or call us directly at (714) 872-2393