INTRODUCTION

Inventory management for any business, while important, can be a daunting task. It becomes complex as the business grows and expands. It begins dealing with more products and components. This includes discontinued and legacy products for older businesses. Larger businesses would opt for an inventory management system software such as QuickBooks. Still one of the keys to effective inventory management is keeping it simple. If it comes to a point beyond your capacity, getting professional help is always a viable option.

However, there's a simple and effective solution to inventory management which is to not have inventories to manage at all. This is where "Just in time inventory" or special order[MP3] comes in. By using this method, a business would only need to order a part or component needed. This would help business to avoid holding on or at least minimize inventories.

Will 'Just in Time Inventory' Method Fit My Fireplace Business?

Using this particular type of inventory management will have pros and cons and will not fit every type of business. So, to help you evaluate whether it is something for your business, you would want to compare costs and benefits. For this particular type of inventory system, determine if the costs of keeping inventories. Consider, it outweighs the costs of logistics when ordering things as needed. For example, if ordering inputs daily, you may want to consider ordering in bulk once or twice a month. This could result in the cost of logistics required for such item might outweigh inventory cost.

Cost-benefit analysis (CBA) is a systematic approach to estimating the strengths and weaknesses of a particular method. Doing this analysis can require a professional as it demands data accuracy to produce precise results. This would be crucial for larger businesses. But for small and medium-sized businesses, a simple overhead calculation might be enough to decide. For example, you could add up realized monthly costs with the realized monthly gains. However, that calculation does not give you all the costs of maintaining inventory. It is just a good estimation over time. Some factors you may want to include in your inventory costs could be:

• Labor to maintain the inventory
• Software
• Hardware (computers/shelves)
• Damaged/unsold product
• Building costs to house the inventory
• Cost of the product itself.

Once you consider the costs, getting a gross estimate in terms of percentages could be helpful. This would be more beneficial than cold hard numbers. For example, labor costs could[MP5] be at 25% of someone's wage who manages the warehouse. Time. Add up the costs you want to track. Then, you would compare those costs with the cost of all the inventoried products you purchased.

So perhaps my overhead costs come to over $175,000 a year and I purchased $1,000,000 worth of inventoried items. From this, we could see that the average overhead for a year was 17.5% of the product cost. This, of course, is an estimate because some items may have a much larger rate than others. But at least you have a rough figure. Now you can begin to answer some basic questions.

• Does the savings in freight (bulk purchases) outweigh the overhead costs?
• Would the loss of orders because of long lead time outweigh overhead costs?

In Cases of Fireplace Businesses

The questions aforementioned are general and moving towards more accurate answers would mean refining the questions. Calculating freight costs of an item may be more beneficial would help develop more strategic and competitive answers. This would be for determining the right inventory management system to implement. In certain cases, wherein the product is significantly large in volume, the freight cost would also be large. This is a significant percentage to overall costs. For fireplace businesses involving numerous different products as inputs, it would be wise to adopt a hybrid inventory tracking system. Some components of the fireplace installation are readily available in a stockroom or warehouse. The Just In Time (JIT) Inventory method can apply when ordering Custom-made components.

Depending on the complexity of products and nature of fireplace installations, it is almost certain to be custom-made every time. For example, you can order a cheap and common material, like bricks, which you can store as inventory anywhere. It is best to order custom-made materials like connector pipes and fragile materials as needed. This reduces the risk of losses over damaged inventories.

With the technology made available today, a simple inventory management system is attainable even when applying mixtures of inventory systems. You simply need a robust and easy-to-use software to track the flow of materials. You will be able to calculate costs with speed and accuracy. If this is what you need, contact us today to learn more.

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