Advantages & Disadvantages to a Manual Inventory Control System

You've heard it before: "I'm not trying to sell you anything," but then you find out they are. "I'm not trying to change your way of doing things," but then it sure sounds like they're knocking themselves out to do just that. If you're determined to keep your manual inventory control system, by all means, keep it. However, it never hurts to fortify your position for the next time a salesperson rings you or emails with "an offer you can't refuse." You just might, but at least you'll be ready to explain why.

Home In on Inventory Control, Management

You can score a point with a pesky salesperson right off the bat – immediately after he uses the terms "inventory control" and "inventory management" as if they are the same thing. You don't have to be haughty about it; you can politely point out that if anybody wants to use two terms interchangeably, they're "inventory control" and "stock control." Both terms refer to managing a company's warehouse inventory level to have enough product on hand when needed.

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The veracity of inventory control requires information from multiple sources, Oracle NetSuite says: warehousing and storage, orders and reorders, shipping and receiving, turnover and loss prevention, and customer satisfaction. If you find that managing all these moving parts is a daily challenge, it may help you to know that your frustration is shared by companies that are far bigger and endowed with far more resources than you. Business annals teem with cautionary tales from companies like Walmart and Target, whose inventory control system failures cost them billions of dollars. (Yes: "billions" with a "b.")

If inventory control takes a close-up view of what's sitting on warehouse shelves, then inventory management systems take a step back for a broader, wide-angle view of the entire inventory process, including:

• Procuring product
• Storing
• Transporting
• Making a profit (ideally)

System Breeds Order

Most of the incentives for securing a solid inventory control system can be reduced to one compelling fear shared by owners of businesses of all sizes: Make one mistake with a customer order, and you may never see that customer again. Scores of research studies validate this fear, especially when 24/7 online stores and seven-day-a-week delivery services are busy elbowing out their competitors for greater market share. Once they latch onto an opportunity, most businesses are smart enough to do everything they can to hang onto it. So your fears are probably justified. If your company continually tells customers that an item is back-ordered (like Walmart did) or out of stock, there is bound to be another company to step in to take your place.

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A robust inventory control system can also spare your business from:

• Ordering too little product
• Ordering too much product
• Losing track of (misplacing) items in your warehouse
• Losing items in your warehouse
• Dealing with outdated or spoiled inventory

If inventory control – manual or automated – seems like a no-brainer to you, then prepare yourself for a jolt: The 2017 "State of Small Business Report" assembled by Wasp Barcode Technologies found that nearly half of all small businesses do not keep track of their inventory – not on paper, not on a spreadsheet, and not even sporadically on a piece of scrap paper conveniently pulled from a back pocket.

Assess Inventory Control Methods

A random piece of paper is hardly an ideal way to keep track of inventory. Technically, it probably doesn't even count as a manual inventory system method, but it is manual, and this is how many small businesses continue to track the products they have on hand and where they can be found in a warehouse. In fact, for small businesses with only a few items to track, using a ledger or stock book can be sufficient. (Tell that to the pesky salesperson.)

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Other inventory control systems consist of:

• Stock cards for each product that document its unit price, sales price and inventory count. There is room on the cards for notes, which may flag delivery delays or any other problems linked to the product. To make full use of this method, someone must update the stock cards regularly. Their true value lies in the ancillary product information.
• Basic spreadsheets such as Microsoft Excel, which many small businesses use to segue from the "paper and pen" method. Spreadsheets can be customized to address the specific needs and conditions of a business. They can be a good way to track inventory levels, as long as the person who busies himself with all the custom effects keeps his supervisor apprised of what he's doing in case the boss ever has to step in.
• Basic inventory software, which may not seem basic at all if you're determined to move up the hierarchy of inventory control systems. Even basic programs can generate real-time inventory updates and flag fast-moving and sluggish products. You might appreciate the affordability factor of this software while your marketing department would appreciate its ability to pinpoint customer buying habits.
• Advanced inventory software, which is no longer out of the financial reach of many small businesses. This inventory control method is touted as one that grows right along with a business, offering detailed analytics to inform every decision.

Rewind the Advantages and Disadvantages

Even the most ardent salesperson would have to concede the obvious advantages of a manual inventory control system. The list may be short, but as Acctivate notes, it packs a punch. A manual system:

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• Involves little cost. Your ledger, stock book and pen (or pencil) are all you need to get started.
• Requires minimal training. Even if you took an inventory control training class, you probably had many affordable options at your disposal, and your investment paid off many times over.
• Represents a model of simplicity. Some people may say that manual systems are overly simplistic – static in nature – but unless they're lost or misplaced, they are reliable. Also, they're usually easy to read and interpret.

The disadvantages of a manual system usually form the "hook" of any salesperson's approach. At this point, it may help to remember that basic spreadsheets are considered manual, too. So stay alert to the cues; you probably are being pitched about basic or advanced inventory software, both of which are considered automated. Either way, it's true that a manual inventory control system is:

• Susceptible to theft or loss – a terrifying and time-consuming prospect for any small business, which must then backtrack and rebuild
• Prone to human error, which can trigger a domino effect, from inaccurate inventory counts to botched customer orders
• Incapable of tracking losses and thefts
• Probably not a long-term option for a small business that is steadily growing, adding new suppliers and products every year

The fundamental goals of any inventory control system are to control costs and reduce them where you can while improving profitability. Your present system may be succeeding in this regard, but if a big change in the way you do business is on the horizon – particularly if your business model will move you online – an automated system that can scale to incorporate more complex analytics may be a prudent move.

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Whatever you ultimately decide, your gut determination to abide by the basics should serve you well. As Oracle says: "Your software is only as good as your processes. Software cannot solve bad processes, just automate them."

References

• Oracle NetSuite: Essential Guide to Inventory Control
• Acctivate: Types of Inventory Systems
• B2C: 6 Times Horrific Inventory Control Almost Killed These Companies