Blog Post
Just In Time Inventory Management
Cloud Accounting • October 10, 2019
“Inventory is money sitting around in another form” - Rhonda Adams, USA Today
Inventory management is the fundamental building block to longevity. When your inventory is properly organized, the rest of your supply-chain management will fall into place. Without it, you risk a litany of mistakes like mis-shipments, out of stocks, overstocks, mis-picks, and so on.
What is Inventory Management?
Inventory management is the basis of a well-functioning retail business. Inventory management systems track the lifecycle of inventory and stock as it comes and goes out of your business.
When businesses don’t have a handle on the activity of their inventory, or worse, track it with outdated spreadsheets and data entry, the rest of the pieces, like order fulfilment, don’t fall into place.
Inventory Management Techniques
This week we are focusing on Just In Time Inventory Management and why it is one of the most popular and effective inventory management techniques you can use to improve your business.
Just In Time Inventory Management
Just-in-Time (JIT) Inventory Management is simply creating what's required, when it’s required, within the amount required.
Many companies operate on a “just-in-case” basis – holding a small quantity of stock just in case of an unexpected peak in demand.
JIT is a great way to reduce inventory costs. Companies receive inventory on an as-needed basis instead of ordering too much and risking dead stock. Dead stock is inventory that was never sold or used by customers before being removed from sale status.
Here are some of the advantages of just-in-time inventory:
- Minimize costs like rent and insurance by reducing your inventory
- Less obsolete, outdated, and spoiled inventory
- Reduce waste and increase productivity by minimizing or eliminating warehousing and stockpiling, while increasing inventory turnover
- Maintain healthy cash flow by ordering stock only if necessary
- Production errors can be identified and fixed faster since production happens on a smaller, more focused level, allowing easier changes or maintenance on capital equipment
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ABC analysis of inventory is a technique of sorting your inventory into three classes according to how well they sell and how much they cost to hold
Minimum order quantity (MOQ) is the lowest set quantity of stock that a provider is willing to sell. If you can’t purchase the MOQ of a particular product, then the provider won’t sell it to you.
Economic order quantity is the lowest amount of inventory you want to order to fulfil peak client demand while not going out of stock and without producing obsolete inventory.
