Inventory Control Systems

The Eyeball System

This is the standard inventory control system for the vast majority of small retail and many small manufacturing operations and is very simple in application. The key manager stands in the middle of the store or manufacturing area and looks around. If he or she happens to notice that some items are out of stock, they are reordered. In retailing, the difficulty with the eyeball system is that a particularly good item may be out of stock for sometime before anyone notices. Throughout the time it is out of stock, sales are being lost on it. Similarly, in a small manufacturing operation, low stocks of some particularly critical item may not be noticed until there are none left. Then production suffers until the supply of that part can be replenished. Such unsystematic but simple retailers and manufacturers to their inherent disadvantage.

Reserve Stock (or Brown Bag) System

This approach is much more systematic than the eyeball system. It involves keeping a reserve stock of items aside, often literally in a brown bag placed at the rear of the stock bin or storage area. When the last unit of open inventory is used, the brown bag of reserve stock is opened and the new supplies it contains are placed in the bin as open stock. At this time, a reorder is immediately placed. If the reserve stock quantity has been calculated properly, the new shipment should arrive just as the last of the reserve stock is being used.

In order to calculate the proper reserve stock quantity, it is necessary to know the rate of product usage and the order cycle delivery time. Thus, if the rate of product units sold is 100 units per week and the order cycle delivery time is two weeks, the appropriate reserve stock would consist of 200 units (I00u x 2w). This is fine as long as the two-week cycle holds. If the order cycle is extended, the reserve stock quantities must be increased. When the new order arrives, the reserve stock amount is packaged again and placed at the rear of the storage area.

This is a very simple system to operate and one that is highly effective for virtually any type of organization. The variations on the reserve stock system merely involve the management of the reserve stock itself. Larger items may remain in inventory but be cordoned off in some way to indicate that it is the reserve stock and should trigger a reorder.

 

Perpetual Inventory Systems

Various types of perpetual inventory systems include manual, card-oriented, and computer- operated systems. In computer- operated systems, a programmed instruction referred to commonly as a trigger, automatically transmits an order to the appropriate vendor once supplies fall below a prescribed level. The purpose of each of the three types of perpetual inventory approaches is to tally either the unit use or the dollar use (or both) of different items and product lines. This information will serve to help avoid stock- outs and to maintain a constant evaluation of the sales of different product lines to see where the emphasis should be placed for both selling and buying.