Asset Intelligence and Management

Asset Intelligence and Management

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Inventory Control: Importance, Types, and Challenges


Inventory management across multiple locations and distribution channels can be quite challenging, especially for large enterprises trying to cut costs while meeting customer demand. According to the National Retail Federation, retail businesses lose an average of $112 billion annually due to inventory shrinkage. An effective inventory control system is therefore imperative for businesses aiming to save money and reduce waste.

This guide discusses everything you need to know about inventory control, from fundamental concepts to advanced techniques. Let’s get started! 

What is inventory control?

Inventory control is the process of managing and coordinating the purchase, storage, and utilization of products in order to avoid a surplus or shortage of inventory. The goal is to ensure an adequate supply is on hand to fill company demands while keeping costs low related to holding and storing that inventory. 

Fundamentally, inventory management aims to provide visibility, organization, and accountability across a company’s entire inventory lifecycle. Some of the critical inventory control components include: 

6 Essential Elements of Inventory Control

1. Managing Items

This involves keeping track of the items a company has in stock, including raw materials, components, and finished products. It also includes organizing and categorizing items for easy access and retrieval.

2. Planning Inventories 

This is the process of forecasting demand for products and determining the optimal amount of inventory to keep on hand. It involves analyzing sales data, market trends, and other factors to make informed decisions about inventory levels.

3. Ordering and Purchasing

This deals with procuring goods and services from suppliers. It includes identifying suppliers, negotiating prices and terms, issuing purchase orders, and tracking deliveries.

4. Warehousing and Storing

This stage calls for storing goods in a warehouse or storage facility. It involves managing inventory levels, organizing items for easy access, and ensuring that goods are stored in a safe and secure manner.

5. Tracking and Monitoring

This involves keeping track of inventory levels, shipments, and other key metrics. It includes using software and other tools to monitor inventory levels in real-time and identify potential issues before they become problems.

6. Reporting and Analyzing

Analyzing data related to inventory levels, sales, and other key metrics is one of the most crucial steps in inventory control. It includes generating reports and other visualizations to help managers make informed decisions about inventory management.

Why is the inventory control process important?

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:

-> Improved visibility

When a business lacks real-time visibility into its inventory, forecasting and decision-making becomes guesswork. Without accurate data on current stock levels, companies risk expensive stock outs of popular products. This causes a halt in operations or unmet demand. Retailers lose over $1 trillion every year due to out-of-stock products.

However, modern inventory management systems enable dynamic  visibility, tracking stock levels and movements in real-time across the extended procurement chain. This enhanced inventory visibility enables data-driven decisions instead of blind speculation, helping companies avoid out-of-stocks due to maintaining optimal stock levels to meet customer needs.

-> Increased efficiency and productivity

An effective inventory management process considerably enhances warehouse efficiency and employee productivity across the organization. Automatically tracking stock levels in real-time enables workers to locate items rapidly without manually scanning shelves. This reduces time wasted searching for products to fulfill orders, allowing staff to ship and receive more orders per day. 

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 schedule tasks for employees based on real workload instead of best guesses. 

-> Optimized costs and profits

Effective inventory control goes beyond managing stock levels; they optimize your entire inventory flow to dramatically impact your 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 product availability, eliminating delayed projects and associated revenue opportunities. 

Statistics on well-managed inventory

-> Enhanced procurement processes 

Inventory management helps streamline and improve the procurement processes of businesses. By monitoring the number of products in stock, how fast they sell, and how often they are replaced, managers gain useful insight. This prevents overstocking of slow-moving products that see infrequent sales while ensuring adequate stock of fast-moving items with high demand from customers.

Moving to an automated inventory management system provides the data needed to make better procurement decisions. An effective inventory optimization system enables smarter, leaner purchasing, which saves money on carrying costs, reduces waste, and ensures shelves are stocked with what customers want. 

Types of inventory control

There are a number of ways to control inventory, including:

1. ABC analysis

In ABC analysis, we classify items based on their value and importance. A-items get the VIP treatment with close monitoring, while B-items get good support and C-items can take a backseat with simpler management. 

2. Just-in-time (JIT)

The process of receiving inventory just when needed is called the Just-in-time technique. This minimizes storage costs and waste, but relies heavily on reliable suppliers and accurate forecasting.

3. Economic order quantity

Imagine finding the sweet spot between ordering too much and too little. In this method, we use a formula to calculate the ideal order quantity, balancing holding and ordering costs. This works best for predictable demand patterns, but requires accurate data. 

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 happened due to retailers mismanaging inventory. 

On the other hand, excess stock ties up working capital while increasing carrying costs. The ultimate test is aligning projected stock levels with actual consumption velocity to avoid accumulating excess while still meeting order fulfillment goals. 

2. Maintaining accurate data

Ensuring data accuracy is a constant challenge in inventory optimzation. Inaccurate data can lead to a cascade of problems, including stockouts, overstocking, and inefficient ordering. The impact goes beyond immediate costs. Inaccurate data infiltrates your decision-making process, leading to budgeting errors, production miscalculations, and ultimately, missed opportunities for growth. 

Fortunately, modern tools and techniques offer a safety net and balance bar. Inventory automation can streamline processes, minimize the risk of human error, and ensure the accuracy and integrity of data. By investing in these solutions and prioritizing data accuracy, businesses can transform the complex inventory management process into a seamless and predictable journey.

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.

Inventory management software can come in handy in these sorts of scenarios and let you analyze your inventory history and predict future demand, which can give you a better idea of where to put each item. 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. 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. 

Upgrading technology solutions like advanced barcode scanners and cloud-based inventory management software provides enhanced tracking capabilities and real-time insights. Effective solutions enable businesses to gain a better understanding of inventory movements, improve operational efficiency, and drive profitability and success by optimizing stock levels.

How can inventory control automation help modern businesses?

Modern businesses are embracing automation to streamline their processes, eliminate errors, and gain real-time insights into their stock levels. Let’s explore how inventory management automation empowers businesses to thrive in the 21st century:

1. Achieve real-time visibility and accuracy

Automated inventory control systems provide real-time visibility into stock levels, allowing businesses to accurately track inventory across multiple locations. This ensures there are no gaps between physical and digital records, reducing costly errors from outdated data. With detailed analytics and reporting, businesses can spot trends and issues quickly.

2. Streamline workflow and reduce costs 

By automating repetitive manual tasks like counting, recording, and reconciling inventory, substantial time and labor costs are saved. Workers are freed up to focus on more value-adding tasks. System integrations also eliminate duplicate data entry, minimize human error rates, and optimize stock ordering and transfers between locations. 

3. Encourage data-driven decisions

The data and insights provided by inventory automation enable better forecasting of business demand. Trends can be analyzed to make smarter decisions on optimal stock levels, transfers, and reorder points. All stakeholders from inventory managers to admin teams can collaborate with real-time accuracy on the same system. This drives the best decisions for inventory optimization.  

4. Elevated user experience

Manual inventory tracking and unexpected stockouts create frustration and burnout. An efficient inventory management system automates mundane counting and recording tasks, allowing staff to focus on value-added work. By investing in automated inventory tracking solutions that make everyday processes easier, businesses demonstrate a commitment to supporting their people. The end result is higher employee morale, engagement and loyalty over the long term.

Choosing the right inventory control system

Managing inventories efficiently is vital for businesses to meet customer demand, reduce costs, and operate smoothly. The right inventory tracking system provides the visibility, automation, and optimization needed for complex multi-location and omnichannel operations. When evaluating options, key criteria to consider include:  

1. Business requirements

Begin by clearly defining your inventory management processes and priorities. From vendors to users, how will inventory be tracked? What decisions need to be informed by the data? Outline functional requirements like real-time reporting, order management, workflow capabilities etc. 

Align stakeholders across departments on needs. Evaluating against concrete criteria allows you to identify the system best suited to current and future business objectives. 

2. Budget considerations  

Inventory management software ranges greatly in cost depending on the provider, capabilities, and deployment method. Cloud-based SaaS systems allow you to pay affordably as-you-go via monthly subscriptions, reducing upfront costs. There are also open source inventory tools although these require greater IT resources for implementation and management. 

Define budgets early when requesting quotes to compare solutions. Consider efficiency gains and ROI in addition to license costs.

3. Scalability and flexibility

As your business grows, can the inventory management system easily scale up storage, users, locations etc? Changing business needs may also require added capabilities down the road e.g. barcode scanning. Solutions built on modern cloud infrastructure allow for  greatest flexibility to adapt over time. 

Prioritize scalable and customizable systems for long-term value.  

4. Integration capabilities  

Inventory management cannot operate in silos. Analyzing and optimizing the supply chain requires integration with order fulfillment, logistics, accounting and security systems. This enables seamless data flows and eliminates manual duplication between platforms.

 Evaluate the end-to-end workflows inventory data must support. Also, look for platforms with native compatibility or open APIs that facilitate connections.

5. User interface and ease of use

The system’s UI and UX determine employee adoption and productivity. Complex interfaces with steep learning curves lead to high training costs and resistance. Intuitive designs that align to user workflows are ideal e.g simple mobile scanning apps. 

Look for features like customizable dashboard views, detailed activity logs, multi-location reporting etc tailored to specific inventory roles. 

With detailed requirements aligned to business priorities, an optimal inventory control solution can be selected for managing supply chains efficiently now and into the future. The investment ultimately pays dividends across operational performance.

Tips for inventory control using a tracking software

Majority of businesses may opt for automated solutions when it comes to inventory control. In order to achieve expected results, it is important to utilize the software in the right manner. Let’s look at some tips for using an inventory management system for stock control:

Accurate tags

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. Once done, you can keep a count of how much inventory is being used and how. Any time an item is taken out for use, stock is automatically updated in the system. 

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. This means that whenever the quantity of USBs hits 5, an alert will be sent out to the admins. 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. 

Track custodianship

Implement check-in and checkout for all inventory items. Any time a user requests for an item, record the checkout time, quantity and location. This way you will be able to assess how much inventory has been consumed and for what purpose. Having details regarding inventory consumption enables you to track utilization trends which helps lay down procurement plans and set budgets. 

Run inventory audits

Carry out regular inventory audits for the items placed in the warehouse and reconcile it with the records of the software. This practice not only helps sustain accuracy but also helps you regulate financial holding of the company. Audits are critical because they help filter out damaged or expired goods, especially for consumables. 

Train staff

It is important to train your staff to use the inventory management system in order to yield positive results. You can give them basic tagging training and how to carry out check-ins and checkouts. Doing so will minimize errors in documenting stock and ensure compliance with company and vendor policies.


Managing stock effectively is no small task, but the returns make inventory control  worthwhile. With enhanced visibility, coordination, and optimization through automated inventory systems, companies operate more profitably and sustainably. Teams access better data to serve customers. Costs drop as less time is spent on manual tasks and revenue grows from smoother operations.

Frequently Asked Questions (FAQs)

1. Why must inventory be controlled?

Inventory control is crucial for maintaining adequate stock levels and avoiding shortages or excess inventory. Proper inventory management supports customer service and demand while minimizing associated storage, insurance, taxes, damage or spoilage costs.

2. What are the two main decisions in inventory control?

The two primary inventory control decisions are when to reorder stock which involves determining optimal reorder points and quantities based on lead times, safety stock, and demand forecasts. The other main decision is how much inventory to keep by setting stock levels to meet customer service needs while minimizing total costs associated with ordering, holding, and shortage.

3. How do you control inventory? 

An effective inventory control process hinges upon six core components: precise item management, data-driven planning, strategic procurement, efficient storage, real-time tracking, and insightful analysis. By mastering these six pillars, your inventory management process becomes a masterpiece of efficiency, profitability, and customer satisfaction. 

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