How to Classify Your Inventory

How do you classify all of the parts and products in your inventory? It’s important to come up with a good inventory classification system because this helps you keep everything well-organized. Choose between these four inventory classification systems to ensure your products don’t get mixed up.

Min-Max System

The Min-Max System is the simplest way to manage inventory. It involves setting upper and lower quantities of inventory that when the low level is reached, you are automatically informed that it is time to reorder a particular product. At the same time, you will be told how much to reorder so you won’t go above the upper limit. Retailers, manufacturers, food producers, makers of healthcare products, and other business types may find this system to be a good fit.

Two-Bin System

The Two-Bin System separates products into two groups. One is designated for normal operations while the other is set aside as the backup so that when the first one is empty, there’s something to fall back on while waiting to be replenished. This setup ensures you always have products on hand, and you’ll be able to easily tell when it’s time to reorder. It’s important to know how much lead time it takes to get new products and how many products you expect to sell in that time to know how many backup products to keep in stock. Retailers, wholesalers, and manufacturers of electronics, books, toys and other products that have relatively long shelf lives may find this to be a good system.

ABC Analysis

ABC Analysis groups all of your products by three main criteria. Group A is made of products that are large and size and have a high cost. Group B consists of products of medium size and cost. Group C includes products that are small in size and cheap to produce. This setup helps with storage and it makes it easy to tell where different products are located based on their sizes. Shopping centers, office supply stores, home improvement warehouses, wholesalers, and other businesses may consider using this system.

Order-Cycling System

The Order-Cycling System requires employees to take stock of their current inventory quantities every week, every other week, every month, or any other timeframe that is appropriate for their needs. After doing this analysis, they reorder the appropriate number of parts and products so that they won’t run out before their next scheduled review. This is fairly risky and it depends on solid analysis techniques and data to maintain the proper inventory balance. Companies with large products that don’t necessarily sell extremely fast could make this system work for them.