Whether you are a small or a large enterprise, establishing strong inventory control across multiple locations can be quite challenging! Ensuring smooth management and distribution of inventory can cost you thousands of dollars in the pursuit to meet customer expectations efficiently.
As per the National Retail Federation, retail businesses lose an average of $112 billion annually due to inventory shrinkage – an outcome of poor inventory control processes. To counter such scenarios, you can use an effective inventory control system and systematically handle your inventory to reduce excessive costs.
This guide discusses everything you need to know about inventory control – from fundamental concepts to techniques for achieving inventory control. Let’s get started!
What is inventory control?
Inventory control, also referred to as stock control, is the process of managing and coordinating the purchase, storage, and utilization of products to avoid a surplus or shortage of inventory. The goal is to ensure an adequate supply of inventory to address organizational demands while minimizing holding costs.
The basic goal of inventory control is to enhance visibility, and better organize an organization’s inventory lifecycle.
Some the critical components of inventory control include:
| Component | Need | Function |
| Stock management | Keeping track of the organizational stock, including raw materials, components, and finished products | Organizing and categorizing them for easy access and retrieval |
| Demand forecasting | Forecasting customer and business demand and determining the optimal amount of inventory to keep on hand | Analyzing sales data, market trends, and production needs to make informed decisions about inventory levels |
| Procurement | Procuring goods and services from suppliers to maintain stock levels | Identifying suppliers, negotiating prices and terms, issuing purchase orders, and tracking deliveries |
| Warehousing and storage | Safely storing inventory items to prevent theft | Organizing and categorizing items for easy access, and maximum security |
| Monitoring and tracking | Tracking inventory usage from time to time and monitoring inventory levels in real time | Using performance metrics, such as inventory usage, to assess potential issues in inventory management |
| Reporting | Analyzing data to assess the cost of inventory and preparing for seasonal fluctuations | Generating reports to make strategic decisions and presenting them to important stakeholders for analysis |
Inventory control vs inventory management
It is common for businesses to use inventory control and inventory management interchangeably, but their function depends primarily on the organizational operations. Inventory control majorly caters to inventory in an organization’s warehouse for day to day operations. It involves replenishing daily-use inventory to ensure optimal stock levels at all times. It forms the basis for smooth inventory management.
Whereas, inventory management refers to a broad range of inventory based processes, such as planning, forecasting, and managing the entire inventory lifecycle. It includes optimizing the complete supply chain, from procurement to disposal, to optimize warehouse operations. Strategic inventory management helps avoid under or over stocking, while regulating turnover rates, and carrying costs.
Importance of inventory control
Inventory control, often overlooked as a mere logistical function, is the backbone of a successful stock management strategy. It ensures smooth operations, satisfied customers, and ultimately, a healthy bottom line.
By systematically managing inventory, businesses can achieve significant benefits, such as:
1. Improved visibility
When a business lacks real-time visibility into its inventory, forecasting and decision-making become guesswork. This soon turns into a vicious cycle of consistent errors in inventory count – leading to stockouts, a halt in operations and unmet demand.
However, modern inventory management systems enable complete visibility by allowing users to keep track of inventory records. Users can rely on detailed inventory records to where, and in what quantity certain inventory items are located. This makes it easier to identify any gaps between physical and digital records so a corrective action can be taken. This way, you can also eliminate duplicate data entry, and optimize stock ordering.
2. Increased warehouse efficiency
A streamlined inventory management process considerably helps enhance warehouse efficiency and employee productivity across the organization. Automatically tracking stock in real-time enables employees to locate items rapidly without manually scanning shelves. They can quickly check the exact location of inventory items, and even change their location from one place. GPS tracking can be used to track the movement of items in transit, and minimize the risk of theft and loss.
Minimizing inventory inaccuracies also leads to less hours lost correcting pick errors and transmission mistakes. With an accurate picture of current inventory at hand, managers can systematically place orders for new items or allocate the current ones smartly to avoid excessive costs.
3. Optimized costs
Effective inventory control goes beyond managing stock levels; it optimizes the entire inventory flow to achieve an optimal bottom line. By streamlining inventory processes, you unlock numerous cost-saving opportunities. Minimizing excess inventory reduces carrying costs associated with storage, insurance, and potential obsolescence.
Furthermore, accurate demand forecasting allows you to optimize purchasing, leading to better negotiation with suppliers and lower procurement costs. Additionally, preventing stock outs ensures item availability, eliminating delayed projects and associated revenue opportunities.
4. Enhanced procurement processes
Inventory management helps streamline procurement processes by allowing managers to automatically record and update the details of inventory items. They can enter details like inventory name, quantity, location and custodian to properly maintain their asset repository.
Vendor details can also be added to the system to record purchases associated with certain vendors; these purchase orders can be accessed later to assess the cost of each purchase.
For instance, a procurement manager can create purchase orders from the inventory management system and track them from order placement to delivery. This way, the entire procurement process can be tracked, costs assessed and gaps analyzed in no time!
5. Strategic planning
Smooth inventory control helps businesses strategically manage inventory by assessing the available quantity and where it is required the most. Managers can draft an inventory management plan to decide on how the inventory should be allocated for use. Any deviations from the plan can be quickly assessed and highlighted to avoid discrepancies in the actual inventory handling.
The plan also sets an outline for analyzing past consumption and doing inventory forecasting. By analyzing historical trends, managers can forecast the future consumption levels to always be prepared for emergencies. This enables managers to set benchmarks based on past performance and industry standards, so inventory managers can strategically plan to meet the organizational demand.
For instance, a strong inventory control at a hospital enables staff to ensure there are enough supplies to meet the operational needs of the emergency unit. Like, keeping track of the expiration dates of hospital supplies to maintain quality patient care.
Top 4 challenges in inventory control
Managing inventory effectively comes with its own set of challenges. Some key difficulties faced by businesses when it comes to inventory management include:
1. Balancing inventory levels
One of the principal challenges in inventory control techniques is striking the optimal balance between supply and demand. A recent Harvard study indicates that 72% of stock outs usually happen due to inventory mismanagement.
Understocking can lead to unfulfilled organizational needs, whereas, excess stock increases the amount of capital tied in inventory – leading to high carrying costs. Both of these scenarios are not ideal! The ultimate goal is to align the stock levels with actual consumption and needs to avoid accumulating over or under-stocking both. This can be achieved by setting reorder points, minimum and maximum stock levels, and consistently tracking stock quantity.
2. Maintaining accurate data
Ensuring data accuracy is a constant challenge in inventory optimization. Inaccurate data can lead to several problems, including stockouts, overstocking, and inefficient ordering. The impact goes beyond immediate costs. Inaccurate data can hamper your everyday operations leading to budgeting errors, inaccurate inventory count, and ultimately, lost productivity.
Inventory automation can streamline processes, minimize the risk of human error, and ensure the data accuracy. Inventory tracking becomes a fairly straightforward task once automated and done with precision.
3. Optimizing inventory placement
Effective inventory management requires more than just managing stock levels. You also need to optimize where you store different items across multiple locations. This can be tricky because you need to consider a lot of things, like how often an item is used, how big and heavy it is, how much it costs to ship, and how much space you have in your warehouse.
By carefully planning your inventory placement and using the right tools, you can make sure your products are always in the right place at the right time.
4. Tracking inventory movements
Accurately tracking the movement of inventory across various stages, from purchase to utilization, is a fundamental yet complex challenge in inventory control. It can be challenging to track the movement of inventory in real-time while using a manual tracking system.
Achieving real-time visibility requires a robust system that captures every transaction and provides insights into stock levels at different points in the procurement chain.
Ways to control inventory
There are several ways to control inventory, but there is no one way which takes precedence over others. The most optimal way for your business depends on a variety of external and internal factors, including budget, size, number of inventory items and more.
Let’s help you understand some of the ways you can establish a stock control for efficient operations:
1. Manual
You can use ledgers or books to manually record everytime you procure a new inventory item. The details of the item can be entered by hand to ensure its counted and recorded. Everytime an item is checked in/checked out, the ledger needs to be updated to keep track of the records.
2. Spreadsheets
Majorly used by small organizations as the first step toward automating inventory information control, spreadsheets are a rather straightforward tool to count inventory. Several data fields can be created to cater to large amounts of inventory-related data. Managers can tag items in the system, apply formulas and automate the count.
3. Inventory control system
Organizations can go a step further in the realm of inventory control by adopting a well-functioning inventory management system. Such a system not only automates the mundane task of data entry, but serves several other functions, like enabling users to update inventory count, apply advanced access controls, generate reports, collaborate between team members and measure performance.
Types of inventory control
There are two main types of inventory control methods that can help elevate your operational performance. The following table explains them in detail:
| Type | Features | Pros | Cons | Example |
| Perpetual Inventory Control | Involves updating the inventory on a regular basis automatically to reflect the true value of the most current inventory levels | → Real time tracking → Automated stock updates → Accurate records | → Requires staff training to use the system → Costly | Retail stores |
| Periodic Inventory Control | Involves updating the inventory on an interval basis (weekly, monthly or yearly). Businesses mostly rely on physical counts during intervals for stock updation | →Cost-effective → Less complex → Allows manual data adjustment | → Ineffective → Risk of stock discrepancies → Unreliable | Businesses with stable and consistent inventory levels |
Techniques to control inventory
There are a number of ways to control inventory, including:
1. FIFO and LIFO
FIFO – First in, First Out – is an inventory control technique that involves using the oldest inventory first that has not been used yet. This is particularly important for perishable items or items whose expiration date is nearing to avoid high disposal costs. For instance, if a hospital has 50 units of a critical medicine available, the staff can first use the ones procured earlier so they are used before expiring.
LIFO – Last in, First Out – involves using the most recently procured inventory first, so the newest inventory is used immediately. LIFO, however, is not accepted internationally under the International Financial Reporting Standards; it is practiced only under the U.S. Generally Accepted Accounting Principles (GAAP).
2. Just-in-time (JIT)
JIT refers to the process of maintaining a small amount of inventory to meet the immediate organizational needs. It minimizes storage costs and waste, but relies heavily on reliable suppliers and accurate forecasting. Managers must determine a reorder point to ensure the inventory is replenished before running out of it entirely.
3. Economic order quantity (EOQ)
EOQ is about finding the right balance between too little and too much stock. It involves using a formula to calculate the ideal order quantity, controlling holding and ordering costs. The demand rate, ordering costs and holding costs must be taken into consideration to order just the right quantity of inventory.
This works best for predictable demand patterns, but requires accurate data.
4. Safety stock
It involves maintaining a buffer stock to avoid running out of stock and handle uncertainties efficiently. Organizations need to have an accurate inventory forecast to determine the exact safety stock needed to run the operations.
IT is advisable to have reliable suppliers to reduce lead time, so inventory is procured on a timely basis.
5. Batch tracking
Batch tracking is an effective method used for warehouse management as it allows managers to categorize and group similar items together in the warehouse for joint tracking. Items are batched together based on their category, expiration dates, production date and similar traits.
It helps implement quality control practices to ensure that the batch is well-maintained. This is particularly important for items that have a low shelf-life, as batch tracking helps use them before they expire.
Best practices for inventory control
Although, there is no one ideal way to ensure a smooth inventory control process – you can achieve sustainable inventory management by assessing what suits your organization the most.
Here are some best practices that can help you better manage your warehouse operations:
1. Tag items
The first step towards maintaining optimal inventory levels is to ensure all stock is tagged and accounted for. Inventory management software offers barcodes, QR codes and RFID which can be used to label your inventory items. You can design your own barcodes based on your organizational requirements, and embed essential information into the code.
Once done, you can then keep a count of how much inventory is being used and how. Any time an item is taken out for use, the stock is automatically updated in the system.
2. Set thresholds
In order to minimize chances of unexpected outages, you can set stock threshold levels in your software. For instance, you set the low threshold level at 5 for USBs at the Baltimore office. Whenever the quantity of USBs hits 5, an alert will be sent out to the admins notifying them of low threshold.
Timely notifications will ensure that a purchase order is set up before the stock is finished. Same can be done for excess stock levels to avoid hoarding items at a single warehouse, tying up resources.
3. Run inventory audits
Regular inventory auditing is the cornerstone of efficient warehouse operations. Run regular audits for the items placed in the warehouse and reconcile it with your digital inventory records. Conduct physical counts from time to time to ensure your inventory is in the right hands and sufficient quantity.
This practice not only helps sustain accuracy but also helps you regulate your finances. Audits are critical because they help filter out damaged or expired inventory and evaluate the value of each inventory item in a transparent manner.
4. Track custodianship
Assign critical inventory items to trustworthy employees to make them responsible for keeping the item well-maintained and tracked. Keep the asset history intact so details of the custodian can be tracked along with each check in and check out.
By tracking the custody of each inventory item, you can keep the inventory secure and safe at all times – increasing accountability. Additionally, knowing who had custody of what inventory item at any given time helps trace any issues back to the custodian, supporting quick resolution. In case the inventory needs to be retrieved immediately, tracking the custodian will make it easier to do so.
5. Train staff
It is vital that you train your staff to use the inventory management system you are using to ensure they properly track inventory. This includes giving them training on how to enter item details into the system, tag the items, update stock levels, and use advanced features for handling the stock. Once you have trained the staff, you can considerably reduce the chances of errors in documenting and tracking inventory.
You can conduct weekly or monthly training sessions for this purpose. First, set clear training objectives, provide them user manuals and introduce them to different aspects of the system for enhanced outcome.
A step forward toward smooth inventory control process
Managing stock effectively is no small task, but the returns make inventory control worthwhile. With enhanced visibility, coordination, and optimization through automated inventory systems, organizations operate more profitably and sustainably.
While there are several inventory management systems that can help control inventory, a SaaS based inventory management system is likely to be the most suitable! It comes fully equipped with advanced capabilities to streamline complex inventory related processes and simplifies difficult workflows for easy accessibility. Adopt such a system today to avoid the hassle of managing inventory manually!Â
