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The Basics of Inventory Management Systems


Inventory management is the overseeing and controlling of the ordering, storage and use of components that a company will use in the production of the items it will sell as well as the overseeing and controlling of quantities of finished products for sale. It is the efficiently overseeing the constant flow of units into and out of an existing inventory.

Company inventory is a primary asset, and represents a major investment until the item is sold or used in the production of an item that is manufactured that is then sold. Warehousing of inventory, tracking its use, and ensuring its availability also costs money. Mismanaged inventories can create significant fiscal costs for a business - no matter if it results in too little or too much of any item.

Successful inventory management involves creating a purchasing plan that will ensure that items are available when they are needed and keeping track of existing inventory and its use. The two most common inventory-management strategies are the just-in-time (JIT) method, where items are received right when they are needed as opposed to maintaining high inventory levels; and materials requirement planning, which schedules their delivery based upon forecasted sales (but with the JIT principles still in mind).

You may be missing such things as named item locations, part numbers, easy to understand units of measure, or not have any “system” in place at all. If you would like a more efficient and ultimately more profitable operations, it’s vital that you put a good system into place.

In addition to maintaining control of products, inventory management also make precise records possible that can be used for accessing taxes due on each inventory type. Without accurate data the company can’t properly calculate the tax amounts, potentially leading to and underpaying of taxes due and the potential for stiff penalties in the event of an audit.

The purpose of this article is to describe the elements of a successful inventory management system. While there is no perfect way to build the components of your system, there are certainly some bad ones.

Crucial Pieces of a Successful Inventory System

  • Unambiguous and unique labels for each item which are easy to read, well-organized, and unmistakable
  • Easy to understand units of measure
  • Accurate starting counts
  • Quality inventory software that tracks activity
  • Good policies in place
  • People who understand the system and follow these guidelines

Unique, Easy to Read and Well-Organized Location Names and Labels

There must be a place that every item is stored, and that “somewhere” must have a name, and it should be clearly labeled as such. The consequences of not having these locations clearly identified are people stocking items in the wrong places, and time wasted looking for them, or locations being referred to by multiple names, your inventory increasingly disorganized.

You need to keep in mind that any open space has the potential to store items, so all must be labeled, not just the ones which are currently stocked. An open aisle? Name it, label it. An empty corner? Name it, label it. The tiny water heater closet? Name it, label it.

There also must be logic in your naming systems, don’t just pick a random scheme. You are creating problems further down the line if you don’t do this up front, so no matter what you call your locations, make sure they are all labeled and unique in designation.

Easy to read labels make your employee’s jobs easier. If letters are too small or they are similar in color to your rack colors, you are slowing down efficiency and opening yourself up to mistakes. Our modular drawer cabinets offer the ultimate in versatility with steel drawer dividers and partitions.

Labels that don't clearly state which location they're referring to, such as no arrows up or down to clearly delineate what they refer to, will cause many of the same delays.

All of your items should have well-defined and unique descriptions, for many of the reasons that apply to locations. Without good descriptions, people become confused if they do or do not have stock in a particular item, or what item needs to be ordered.

Item numbers also help uniquely identify items using abbreviated descriptions. When searching for inventory, filling orders, making transactions or searching reports, item numbers become very important. Instead of stock descriptions which can be a hundred characters long and difficult to ID at first glance, many companies employ item numbers of just four or five characters for enhanced efficiency.

Inventory Units of Measure

Units of measure, things like “pieces”, “lbs. or “bags” give meaning to quantities. They belong in their own separate place within your system, outside of descriptions and the numeric quantity fields. Using well-created and consistent units of measure will make stock levels, shipping and ordering quantities easier to understand for all of your employees.

An Accurate Starting Count

Loading data into a new inventory software program is an excellent time to get a good count of your stock levels. Once you have labeled your locations, cleaned up your descriptions, created item numbers, and used consistent units of measure, getting a good stock level count will be much easier, faster, and better organized.

A Software System That Tracks Your Inventory Activity

Using pen and paper or even a spreadsheet to keep your inventory data is not a proper system, as you probably realize. Good inventory software will make it easier to track your inventory, give many users access, provide insight into your inventory activity, and keep an accurate historical records. Working with ShopFlow Solutions, we can help guide you to the right software system for you.

Training Employees and Creating Policies to Support Your Inventory System

As with all things, the employees who handle your stock and utilize the inventory system are the most vital component in establishing a successful one.

These people need to know what to do with items received, taken from stock, reserved for future use, and required for production. This may only involve a few people or even just one, but having your policies set in writing and making sure they are followed is always a best practice. If your staff isn’t consistent in using the system it will fail, no matter what policies are in place or software you use.

The mission of ShopFlow Solutions is to provide the products that support all of these crucial elements of your company inventory control.

Shopflow Solutions is a leading provider of products which make your facility run more smoothly and efficiently in support of your inventory management system. We help you get organized - and stay that way, with our tool storage equipment, and CNC tool protection products.

Contact us today to see how we can provide you with the guidance and products needed to support your new or existing inventory management system. 

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