Benefits of Batch Tracking and Periodic Inventory

global supply chain management and operations officers course

Last updated on April 4th, 2024 at 09:45 am

Businesses are built on two crucial factors, product quality and customer service. 

Batch tracking is an efficient approach to inventory management which plays a crucial role as it impacts on both product quality and customer service. 

global chief supply chain and operations officers course

In addition, periodic inventory management, through keeping track of an inventory in periodic segments, helps to maintain the balance between supply and demand patterns to maximize profit.

While batch tracking enables a business to recognize the source of a problem (quality issues) in the larger supply chain, periodic inventory management reduces the chances of such problems as they help to tailor the goods to meet the customer’s demand.

Methods of Batch Tracking

The three most effective methods of batch tracking in the supply chain are:

Push Strategy

It is a method in which goods are “pushed” down, that is, it essentially tracks the downflow of the product from the initial manufacturing process to the reception by the customers. A company must accurately predict product demand in order to successfully use the push strategy. It is important to know how much of a product is required and when, throughout the year. Businesses can gain valuable insights into how inventory has been used over time and how much inventory they may need to order over the course of a year by using inventory management software.

For instance, a home appliances business might stock hundreds of air-conditioners and coolers in the spring and summer but only a few in the winter. These shops decide how many grills to purchase based on sales records of appliances previously sold. For companies that can precisely predict their customers' needs, the push technique becomes the most favorable and efficient of all.

Pull Strategy

A pull strategy is an inventory management method in which a store, warehouse, or company "pulls out" goods only when ordered by a customer or employee. Items move upstream in the supply chain instead of moving downstream. This can take a lot of time. Pull techniques are used mainly for luxury or novelty items (products with unpredictable demand). 

For example, many wedding dresses for brides are "not taken off" until the purchaser submits their credit card. These women choose dresses from dress samples and websites, and the final dress is either made or sourced at the time of purchase. It can take months, but customers usually have no problem using it because it is an industry-standard. However, the pull strategy is not suitable for all businesses, especially when customers have immediate access to the same product from another supplier.

Just-in-Time Strategy

Just-in-time inventory strategies are similar to pull strategies. That is, companies order inventory "just in time" to meet customer orders and business needs. Additionally, to successfully implement and accomplish a just-in-time inventory management strategy, one requires reliable suppliers, vendors and third-party logistics partners. Without these, businesses cannot meet customer's demands.

 Just-in-time warehouse management helps companies reduce inventory costs, reduce inventory, and improve cash flow. On the other hand, businesses that rely on JIT inventory cannot always keep up with demand and may have to overpay for products just to get them to their customers faster.

Methods of Periodic Inventory

The three most effective and commonly used methods of Periodic Inventory can be categorized as FIFO, LIFO, and FEFO. These strategies can be tailored to suit the requirements of the business, as well as, their customers, by adjusting to a favorable interval of inventory management which can be accomplished by determining the approaches mentioned below.

FIFO

FIFO stands for First In, First Out. This strategy of management is mostly useful if the business deals with fast-moving and/or products for consumption, as it will ensure the oldest inventory is sold first.

LIFO

LIFO stands for Last In, First Out. This strategy is not the most commonly used. However, businesses involved with products that do not have a natural date of expiration are often found implementing this strategy. 

FEFO

Lastly, FEFO stands for First Expiring, First Out. This strategy is used in businesses that deal with products with clear expiration dates, as products with expiration dates closest to the date of purchase are sold, used, or otherwise disposed of first, regardless of when they were manufactured or purchased. This strategy is often preferred by businesses in the food industry (perishable products) over FIFO because it focuses on the date of expiration over the date of manufacturing.

Advantages of Batch Tracking

The main advantage of batch tracking is the full traceability it enables. There are many benefits for companies when they monitoring the shelf lives and quality of their products from raw materials to point of sale. Such as,

Safety and Quality control

Batch tracking is essential to inventory monitoring to ensure quality control and safety, as it allows anyone to quickly and efficiently identify all items in the relevant batch when a problem is identified.

Expiration-date Tracker

Expiry date data is used for supply sequencing strategies and marketing and promotions. With batch tracking, one can easily assign expiration dates to entire batches instead of individual items and track inventory that is nearing expiration, so they can initiate promotions, for example,  to increase sales.

Automated Sequencing

Batch tracking also enables businesses to integrate automated sequencing strategies for their inventories like FIFO or FEFO. This practice results in the extraction of the optimum value of inventory by minimizing potential waste.

Recall Process Ability

No one wants a product removed from the market, but removing it before it causes major problems is critical to long-term customer satisfaction. When a recall becomes necessary, lot tracking software allows companies to more quickly send appropriate notifications to their supply chains and affected customers.

Better Product Quality

Knowing what materials are used in a quality batch of products allows you to continue ordering from the best suppliers and avoid those who do not provide the right materials. Overall, this results in better product quality, increased customer satisfaction, and increased sales.

Hassle-free Supply Chain 

Just like the ability to identify good batches that lead to better product quality, so can your supply chain. Batch tracking helps business owners identify the best and most cost-effective vendors and close more deals.

Financial Benefits

Batch tracking supports more informed decision-making and saves costs. Simply knowing the best time to sell a batch of your product based on the expiration date can prevent your inventory from aging past the sell-by date. Knowing when a product needs to be recalled also helps avoid replacement shipping costs and potential legal fees.

Improved Accounting Competency

Processes automated with the help of batch tracking technology can decrease accounting errors and data misinterpretation. Improved visibility makes it easier to monitor the location of all items in batches to see if they are still in stock, in transit, or already sold.

Benefits of Periodic Inventory

The practice of Periodic Inventory management provides several benefits which eventually enable the system to track both purchases and sales over a set period. By utilizing a periodic inventory system you can determine how much money was spent on what, and how many items were sold. Periodic inventory, therefore, not only improves the general quality of the inventory stocks, but also has economic benefits. Some of the benefits of this practice are,

Simplicity

A periodic inventory system primarily simplifies the process of inventory management and documentation. It reduces manual efforts by doing less math, using less paper, and saving time which can be used for other management tasks required.

Economic Efficiency

One only needs to count their inventory at regular intervals. Thus, they might want to buy some barcode stickers and scanners, but these are a cheaper alternative than running sophisticated computer systems that monitor your inventories continuously (or in real-time).

Accuracy

As the main objective is to count the cost of goods sold and the closing inventory, one needs to be patient until the physical check is finished. These physical checks, although time-consuming, provide accurate and in-depth knowledge of the inventory stocks which cannot be achieved by automated systems.

Conclusion

Batch tracking and practices of periodic inventory management, are thus one of the most effective management practices that provide benefits to most businesses through increased visibility and exactness in inventory management. By extension, as a result of these benefits, both indirectly help businesses in maintaining and/or improving their customers’ satisfaction, as well as in raising their product quality. 

To enhance skills in inventory management in a supply chain and other related areas, professionals can enroll in supply chain management courses such as the Supply Chain And Operations Officer course or the IIM Raipur Supply Chain Management program.

For senior executives looking to develop their skills further, Imarticus Learning offers the IIM Raipur Executive Certificate Programme For Global Chief Supply Chain And Operations Officers, providing them with the tools to excel in their roles and drive success in their organizations.

Visit Imarticus Learning to learn more about Inventory management in a supply chain.

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