Inventory control is one of the core disciplines of inventory management and is vital to the success of any business with physical stock as part of its supply chain.
Our inventory control guide will look at how you can manage and track your stock levels. We'll also look at best practice inventory management software you can use to streamline your operations and enhance productivity.
What is inventory control?
An accurate inventory control definition would be maintaining inventory levels to avoid stockouts while minimising the costs and inefficiencies of excess inventory.
Inventory control aims to ensure your business has the necessary inventory to meet its needs and avoid overstocking, which will waste storage space, time and money.
Inventory control is also known as stock control, an essential inventory management method. Proper inventory control is paramount to profitability for any business selling physical goods. Poor inventory control will lead to financial losses and business failure.
Inventory control forms part of the broader disciplines of inventory management and supply chain management.
Why is inventory control important for my business?
Inventory control is the backbone of successful business warehouse management, ensuring businesses can promptly meet customer demands, decrease costs, and optimise their operational efficiency.
In today's competitive market, where expectations are soaring, mastering inventory control will be paramount for sustainable business growth and profitability.
Inventory control encompasses various processes to oversee, manage, and optimise the flow of goods within your business.
Here's why inventory control procedures hold immense significance for business:
- Minimising stockouts and overstock: Stockouts can lead to dissatisfied customers and lost sales opportunities, while overstock ties up valuable capital and warehouse space. Inventory control helps strike a balance by ensuring adequate stock levels to meet demand without excess inventory.
- Reducing the cost of goods: Excessive inventory ties up capital that could be invested elsewhere. Accurate inventory forecasting and optimising inventory levels can reduce carrying costs, including storage costs, insurance, and depreciation expenses.
- Enhanced efficiency: Effective inventory control can streamline your operations by providing clear visibility into stock levels on hand. Inventory control can help your business to be better planned and minimise the unnecessary movement of goods. This efficiency ripples down to faster order fulfilment and happier customers.
- Accurate demand inventory forecasting: By analysing historical data and market trends, inventory control helps warehouses to make informed predictions about future demand, helping decision-making around procurement, production, and replenishment strategies to become more proactive.
What types of businesses must have inventory control?
Any business handling physical goods will need inventory control in some form. However, how businesses control their inventory will differ depending on their needs.
- Wholesalers or distributors: These businesses often buy bulk goods and must manage longer supplier lead times. Holding costs and warehousing space are also vital for inventory control processes.
- Manufacturers: This will often be between those that make goods to order versus those that "make to stock".
- Businesses dealing with perishable goods: including beverage and food makers, pharmaceutical manufacturers and any business selling goods with limited lifespans, such as electronics. All of these business types have a more considerable inventory control need because they can balance the possibility of loss because of the wastage of raw materials and products expiring against understocking risks.
- Retailers and multichannel enterprises: Customer satisfaction is usually at the forefront of retailers' minds, and having sufficient goods in stores plays an important part. However, this kind of business model is capital-intensive. A misjudgment of demand or overstock of the wrong channel can lead to costly write-downs and write-offs, will be the case with many high-profile retailers.
- Businesses struggling with varying lead times: Disruptions to lead times, where once-predictable delivery times from suppliers becomes volatile, makes reasonable inventory control more difficult. It forces firms to stockpile so they can continue trading.
What are inventory control systems?
An inventory control system can refer to any solution that helps a business control its inventory.
Proper inventory control procedures ensure sufficient material is available for a business's needs, all while keeping stock within limitations.
There are two significant types of inventory control:
Periodic inventory control systems
Periodic inventory control systems rely entirely on stock takes for current stock levels. This is usually the most straightforward inventory control system.
When using the periodic inventory system, your stock levels will be checked in intervals so you can make the right replenishment decisions.
Often, small businesses will begin managing stock using periodic inventory methods. This may include keeping track of inventory levels using spreadsheets or manually using stock books.
As businesses grow, the cash flow impacts overstocking and the time spent updating and checking records. This often necessitates moving to an always-on or perpetual inventory control system.
Perpetual inventory control systems
A perpetual inventory control system will track stock movements in real-time, allowing your organisation to have efficient inventory control.
Stock adjustments can also be updated automatically using the perpetual inventory system, including:
- Stock arrivals to a warehouse are recorded manually or using barcode scanners.
- Stock transfers between warehouses or stores.
- Sales via multiple different channels.
- Consumption of raw materials during manufacturing.
- Bulk shipments are broken into stock-keeping units.
- Kitsets or assemblies bundled together before being sold.
- Wastage that results in a loss.
What are the standard inventory control methods?
Inventory control will usually be split up into two different methods. These are known as the Just in Case (JIC) and the Just in Time (JIT) methods.
Let's take a detailed look at these two standard inventory control methods.
Just in case (JIC) inventory control
Just in case (JIC) refers to an inventory control strategy concentrating on ensuring a sufficient buffer of safety stock is available.
Even though this is less cost-effective than other inventory control types, the JIC method has recently become increasingly popular. This has been mainly because of rises in disruptions within supply chains and supply limitations.
Just-in-time (JIT) inventory control
Just in time (JIT) is an inventory control technique seeking to keep levels of physical inventory to a minimum.
After all, any stock you have in the warehouse costs you money and is at risk of never being sold.
If you are a wholesaler or distributor, JIT is where products spend barely any time within your warehouse before your customers buy them.
If you're a manufacturer, this means merchandise, components, or ingredients arrive immediately before being used in production, and finished goods are only sitting around after being sold. Costs and inventory control problems often occur when holding goods, but this will be kept to a minimum.
JIT is one of the more powerful inventory management techniques around. However, it can also take a lot of work to achieve this. Getting it right will mean having total oversight of your suppliers, manufacturing line and customer demand.
What does best practice inventory control look like?
There's no single method for inventory control management, but it is essential to understand the different approaches and models that other businesses use.
Successful inventory control you decide upon depends on your business's unique needs. It is usually easier to see differences between a company with the right level of control and one that doesn't.
Here are several things you should aim for:
Set inventory control procedures and policies.
The easiest way to gain a more organised warehouse is to pick your procedures and policies and ensure that everyone in the business follows them.
You could decide what happens when your new stock needs ordering and then, once it arrives, how you record it.
When your team works together, you can reduce stock wastage, keep a single inventory information source and easily take your stock.
Track everything that goes out the door
Sometimes, products may leave the warehouse before being allocated to sales.
An example of this could be when your business makes charity donations or, occasionally, has damaged goods.
Companies with less-than-ideal inventory control often fail to record these stock departures effectively, marking them as lost goods, and final reports must be corrected.
Be proactive with your inventory control
The companies mastering inventory control will often have something in common: proactivity. Take your time with issues, but constantly look for ways to improve.
For instance, new technologies, such as RFID or barcode tracking, can make keeping stock control much easier by reliably gathering quality data.
Set stock par levels
Setting your stock par levels, or minimum on-hand quantities for your business helps reduce the risk of overstocking while helping to avoid stockouts.
Conditions can change over time, so monitor par stock levels several times during the financial year to ensure they make sense and adjust where necessary.
Use an ABC analysis to prioritise
An ABC analysis of inventory is based on the Pareto 20/80 rule that determines that 20 per cent of inventory accounts for 80 per cent of cost.
ABC analysis multiplies the cost of each unit, which is broken down into three different cost levels, from the most to the least valuable.
Manage your supplier relationships effectively
Effective relationships with your suppliers must have clear, proactive, two-way communication within the inventory control process.
Ensure you let your suppliers know when to expect sales increases to give time to production adjustments.
Have your suppliers notify you if one of your products runs behind schedule. That way, you can stop your promotions or consider an interim replacement.
Audit stock regularly
Regular reconciliation is crucial and doesn't mean you need to conduct regular physical stock counts.
Cloud-based inventory management software will provide you with real-time inventory data; it's essential, however, ensuring that reports and physical stock numbers match up.
Create a contingency plan
Unfortunately, even the best inventory control practices and techniques will not protect you from the unexpected and prevent occasional problems.
Preparing for these possible scenarios means you can stop more significant problems that may impact you.
Develop a contingency plan that details how you will react if these issues occur and how to stop them.
What is inventory management software?
Inventory control software systems make perpetual inventory control possible. With inventory control software, businesses can record and manage details for every item it owns.
Access Financials Stock Control module provides an easy way to manage stock, goods inwards, sales orders and deliveries, all in the most efficient way possible. Some of its features include:
- The entire catalogue of information: record a wide range of information, including stock codes, descriptions, barcodes, serial numbers, photos and images, costs and pricing.
- Advanced Price Matrix: store unique pricing structures for every customer and stock combination.
- Availability and visibility: See exactly what you've got, where it is, how long it'll last, and what it's worth, which are some of the critical benefits of inventory management. Supplier and customer orders, bills of materials, deliveries and returns across locations, lots and bins continually update stock quantities.
- Stock forecasting: improve stock forecasting using 'anytime frame' and 'what if' scenarios to help time new sales orders, purchase orders and supplier lead times.
- Automatic invoicing: delivery notes and invoices are automatically created and sent digitally or printed.
Inventory software also makes order fulfilment more efficient for your business. It ensures orders are completed quickly and accurately whilst maintaining tight stock controls. Check out our complete guide to order fulfilment and warehouse management for more.
Conclusion
We hope this article has helped you to understand the importance of inventory control better and help you make the right inventory management decisions.
In today's dynamic business landscape, mastering the inventory control cycle is a competitive advantage and a necessity for long-term success.
Effective inventory control can be essential for optimising warehouse operations, meeting customer demands, and achieving sustainable growth.
Leveraging the latest technology, such as inventory management software, can help businesses streamline inventory management processes, reduce costs, and enhance overall efficiency.
Using Access Financials means you'll gain complete visibility of your inventory. You'll get to understand exactly what stock you hold at any point in time, receive up-to-the-minute valuations, and have the ability to track how quickly it's moving.
Download our brochure or check out our 4-minute demo today to find out more.