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Assuming
a firm has performed Economic Order Quantity and Reorder
Point analysis to determine how much inventory to
order and when to reorder inventory, the firm still
needs to be able to keep track of inventory levels so
that they know when they reach the Reorder Point. There
are a number of different inventory systems starting
with the most archaic and working up to the most
advanced.
Physical Counts (Periodic
System)
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The most basic
method of inventory tracking is physical
counts. Physical counting is exactly what it
sounds like; if you want to know your
inventory level, you better take off your
shoes so you can count on your toes when your
fingers run out.
It is used where it's very
difficult to reorder at the reorder point if
you aren't constantly aware of your inventory
levels.
Two-Bin System
The two-bin system is only slightly more
sophisticated than the physical count system.
Using the marvels of modern technology, this
system uses two bins of materials.
When one
bin is empty, it's time to re-order. |
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Perpetual Tracking
A perpetual track method of counting is demand
driven. Instead of counting how many items are in
inventory, you count how many leave inventory. The
demand can be tracked by batches of inventory usage,
such as demand that is entered once a week, or they
can enter in real-time which provides the ability to
continuously monitor inventory levels. If you are
already in the practice of counting demand, this is
a great way to track inventory because it involves
little additional effort provided there is little
variability in the products that are demanded. For a
supermarket, this can be more difficult because of
the variety of products sold. |
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Universal Product Code (UPC)
UPC is a system that supermarkets first implemented in
the 70s . This requires unique codes to be put on all
types of inventory and is usually accompanied by a bar
code that can be scanned via infrared scanning guns. If
you've been to the supermarket at in the last 30 years
and had a pulse at the time, you probably noticed that
everything you buy is scanned into their system. In
addition to helping the market determine how much you
should pay, this also gives supermarkets, and other
firms, the ability to track and count the movement of
any and all inventory with a simple infrared scan.
The classic example of infrared product tracking is the
implementation of package tracking that Fedex and UPS
have incorporated into their business
processes. |
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In case
you're unaware, both Fedex and UPS now track all
packages at every stage from pickup to delivery.
The
beauty behind the system these two companies have
implemented is that not only does it directly help their
operations management, but it also directly improves
customer service.
Now, customers can log onto a Fedex or
UPS website from anywhere in the world, enter in the
tracking number they received when they dropped the
package off for shipping and know exactly where their
package is in real time.
Marketing studies have shown
that informed customers are typically more satisfied and
this process is a wonderful example of how the
businesses are able to inform themselves and their
customers with one technology. |
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Radio Frequency ID (RFID)
RFID is another method of tracking inventory.
Instead of using technology to track inventory as it is
moved, RFID counts inventory automatically from a remote
location. This is superior to perpetual inventory
tracking or perpetual inventory with the UPC for a
couple of reasons. Most notably is that RFID accounts
for shrinkage (lost inventory, not what happens to
Costanza in cold water). As much as we might not want
inventory to just disappear, the fact of the matter is,
things grow legs. Also, inventory is often scrapped.
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Perpetual counts that lower inventory levels
only when there is demand account for lowered
inventory when a good is stolen, unless the
thief enters into the system to be a nice guy. RFID counts what is actually there,
and it can tell you exactly where it is. |
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Different systems have their time and place so you
should consider what's right for you. It may turn out
that the two bin system is a great fit for your
operations. If holding costs are really low, why not go
for the two-bin approach. Hell, you might not want to
even invest in two bins. Maybe you can easily do a
physical count on a daily basis. The key is to find a
system that works for your needs. |
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