Inventory control system Examples

Managing our inventory as a retailer is a humongous task. Inventory management grows more and more complicated with increase in sales volume and diversification of product assortments. In this post, we will discuss the various methods I have come across in retail industry for inventory control.

- ABC

- Two Bin Method

- Three Bin Method

- Fixed Order Quantity

- Fixed Period Ordering

- Just In Time

- Vendor Managed Inventory

ABC Method :

This is one of the common methods used across retail industry and it is at times coupled with other methods for better control on inventory. This is more of an inventory classification technique where in products are classified based on the sales contribution and importance of the same in their assortment plan.

A- Category products will be the maximum grocers in sales and flagship products with higher margin. Usually top 20% of the products in the assortment contributing to 80% of the total sales are classified under A category where tight control on inventory is required to ensure no loss in sales. 20% of products contributing to 80% of sales is known as 80-20 Rule or Pareto principle

C-Category products are bottom of the line contributing less to sales. These items are marginally important for the business and are kept only for the sole purpose of customer requirement.

B-Category products are important to the retailer but are less important compared to A Category products.

TWO BIN Method :

This is a simple method used usually in warehousing where in an item is stored in two locations or bins in a warehouse and the stock is replenished in the first bin from the second bin once the first bin is consumed completely. The required quantity to be filled in the second bin is placed for ordering.

The availability of stock in each bin is calculated based on reorder lead time to ensure enough stock is made available till the new stock arrives.

THREE BIN Method :

This is a common method following in manufacturing where Kanban system is being followed. It is similar to two bins system with a third bin at the suppliers' location. The supplier will not manufacture spare parts for the manufacturer until the reserve bin is emptied. Three bins each with a Kanban card tracking movement of inventory is available, one at manufacturing/ shop floor, one at the shop/back store, one with the supplier. Once the inventory in manufacturing/shop floor bin/display is consumed/sold, it is replenishmed with the complete bin from the back store/shop. Later the back store bin is sent to the supplier and replace with a complete bin from the supplier. Then the supplier will manufacture to fill the inventory in the third bin with him. This will act as a complete loop until manufacturing of the product is ceased.