The inventory processing system, or the inventory control system, as it’s also called, is a tool that simplifies a lot the work needed for a company. Consequently, today we are going to look at a definition of it and see how to do it.
Inventory Processing System Definition
On the one hand, this is a system that comprises all the aspects related to managing the inventories owned by a company. It includes various steps, such as:
On the other hand, not all companies have different subsystems associated with each step, but they need to follow each of them. It’s very important for them to be performed in sequence if you want to have a well-functioning inventory processing system. Luckily, now there are plenty of computerized such systems, which make it possible to include different subsystems and make them all coherent.
Computerized vs Manual
Today, more and more small and mid-sized businesses started to use computerized inventory management systems. Obviously, there are lots of small manufacturers, retail outlets, as well as other types of businesses that keep relying on manual ways of tracking inventory. On the other hand, convenience stores, nurseries, or shoe stores may find it a waste of money to invest in such a computerized system.
However, the companies that have a high-volume turnover of raw materials, as well as other finished products, have turned the automatic systems into an essential element of their activity. It has been integrated into the business strategies that rely on maintaining competitiveness and increasing the overall productivity. Moreover, together with the general development of technology, we have witnessed the appearance of electronic inventory control that addresses a variety of other administrative issues.
How to Do It
First, one of the goals of an inventory processing system is to find out how much stock you need to maintain to meet the production demands. Moreover, you need to know what’s the right type of material, to get at the right moment in the appropriate quantities and for as low an amount of money as you can. To put it bluntly, the inventory is basically money transformed into materials, storage space, equipment, work time, etc.
Consequently, you need to plan for the optimum quantities of resources at any stage of the production cycle. Thus, there are four main steps involved in the management of the inventory:
1. Determining the optimum inventory levels and how to review and adjust them;
If you end up with having too much inventory, you are locking your working capital in the items you have. Moreover, you will have to face an increased carrying cost, even though you can take advantage of a reduced order cost. On the other hand, having too little inventory will allow you to use the working capital for other purposes. In this case, you will also have a cut down in the carrying cost, as well as an increase in the ordering cost. Remember that you risk paying more for a stock-out situation. As such, the ideal level of inventory should reduce your losses and improve your production.
2. Determining the degree of control necessary to achieve the best results
Here, you need to decide how much control you need to achieve the objectives set for the inventory management. For this, you can use a simple ABC classification:
- A – This designated high value, low quantity items;
- B – It refers to group stock that has a relatively equal value/quantity proportion in the total inventory;
- C – It opposes the A group, designating items that are high in quantity, but low in value.
As such, depending on your requirements, you need to decide which class of production is more important and to adjust the activity accordingly.
3. Planning and designing the inventory control system
Briefly, the inventory processing system aims to offer the organizational structure, as well as the operating policies, tools to maintain and control the goods in the inventory. Usually, this system is employed for ordering and receiving goods, timing the placement of the orders and tracking the quantities, the types of materials, together with information about the provider. There are two types of inventory control system:
- Fixed order quantity system;
- Fixed order periodic system.
4. Planning the inventory control organization
Finally, you need to integrate all the information about the inventory into the rest of your business strategy. This will help you stay on top of the quantities you’re selling and see how often you need to restock.
Next, to leave you with a complete image of the inventory processing system, it’s important we add a processing checklist. Consequently, this represents the tasks you need to carry depending on the period of the activity.
1. Daily Processing
- Enter transactions;
- Change inventory costs;
- Transfer inventory;
- Change inventory prices;
- Print the inventory reports.
2. Physical Count Processing
- Selecting the inventory;
- Printing the count sheets for all or some of the items;
- Count the inventory;
- Enter the physical counts in your system;
- Print the inventory count register;
- Update the counts as needed.
3. Period End Processing
- Review inventory transactions;
- Print monthly analysis reports;
- Period end update.
Usually, these tasks are completed by the computerized inventory processing system, although you can adapt them to manual work as well. However, there are lots of modern systems rely on barcodes or radio-frequency identification (RFID) to offer an automatic identification of inventory objects. Consequently, whenever you need to record an inventory transaction, for example, the system relies on the RFID reader or a barcode scanner to identify the object. Lastly, it collects all the data it needs from the operators through mobile computers or terminals.
Here you can see some extra explanations about inventory management:
To draw a conclusion, you need to know that an inventory processing system is a great way of organizing the activity inside a company. Consequently, regardless of the size of your company, the field, or the product/service you are offering, you need to keep track of all the inventory items and make sure the timing is right. Finally, even though you may not need to invest in a computerized system, you must carry on with the work manually.
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