Inventory Control, also known as Stock Control, is the process by which a business controls and manages the inventory to ensure that the right amount of stock is available in the warehouse.
Here’s an example to better understand this concept. Suppose during inventory counting, a business discovers that a particular product has been sitting in the warehouse for a long time and its expiry date is near.
To clear this stock, businesses can do multiple things, like putting a discount on it to sell quickly, bringing it forward in the warehouse to increase visibility, etc.
This may have caused some confusion between inventory control and inventory management. Let’s clear it up first before moving forward.
Difference Between Inventory Control and Inventory Management
Below are some ways that show the differences between inventory control and inventory management:
- The scope of inventory control is limited to the available inventory in the warehouse. In contrast, the scope of inventory management is broad as it starts with the raw material and ends with the finished products. This means that inventory management deals with the entire production process.
- There are two main goals of inventory control. One is to ensure that the warehouse has enough inventory, and the other goal is to ensure that this inventory is of optimal quality.
On the other hand, the goal of inventory management is to ensure that the right inventory in the right amount is available at the right location at the right time.
- Inventory control is concerned with what products are available at the warehouse, where they are located in the warehouse, and their condition. On the other hand, the concerns of inventory management are related to which products, in what amount, and at what time should be ordered.
Types of Inventory Control Systems
The following are the major types of inventory control systems:
Periodic Inventory Control System
A periodic inventory control system depends on a physical inventory count. This means that the inventory records are updated after a physical count, which occurs periodically. The periods of this count can be monthly, quarterly, seasonal, or annual.
The pros of using this system are that it is easier to operate and manage especially for businesses with less complex inventory needs. Individuals can enter and manage information manually.
On the other hand, a disadvantage of using this system is that it takes more time to manage and operate.
Perpetual Inventory Control System
If a business chooses to use the perpetual inventory control system, the inventory data will be updated in real-time as a transaction takes place. One of the advantages of using this system is that there is no need to manually enter data. This reduces the chances of errors in the data.
On the other hand, one disadvantage of using this system is that the software can be expensive to maintain. It may also not be able to detect discrepancies like product loss, theft, damaged products, or scanning mistakes.
The perpetual inventory system primarily uses the following two technologies:
- Radio Frequency Identification (RFID)
- Barcodes
Below is their explanation:
Radio Frequency Identification (RFID)
RFID tags have information stored in them electronically, which is much more than what barcodes can store. These tags are mostly used for high-value products or those requiring additional security measures, such as pharmaceuticals.
So for businesses dealing with inventory security, RFID can present the required solution, offering ways to track the stock and prevent losses.
Barcodes
Barcodes are little images that are available on the packaging of the individual products or the packaging unit. This image stores product information.
This information is read by a tool called a barcode scanner. These scans are carried out when a product arrives at a facility and when it leaves one.
Strategies of Inventory Control
These are the popular strategies of Inventory Control:
JIT Inventory
JIT (Just In Time) Inventory is one of the demand-driven techniques of inventory control. In this, a business acquires inventory only when a customer places the order. This means that rather than purchasing inventory in advance, businesses only purchase after an order is placed.
Using this technique, businesses have to spend less on inventory storage. On the other hand, there is a risk of stockouts in case the shipment is not delivered “just in time.”
ABC Analysis
ABC Analysis is the technique of inventory control in which the stock is classified based on its importance and value to the business. This value is calculated using the price per unit and annual demand of the products.
The A-category products are of the highest value, and the C-category products are of the lowest value to the business. Implementing this technique can help businesses maximize profits by enhancing the focus on category-A products.
This can also decrease the inventory holding cost by managing category-C products.
Safety Stock
Keeping a safety stock is an excellent technique for inventory control. Safety stock is a surplus stock that businesses keep at the warehouse along with the regular stock.
This is kept as a preventative measure against the volatile nature of the market. It won’t become a burden if it is calculated using the correct formula and data. This is a basic formula for calculating safety stock:
Safety Stock = (number of items sold per day) x (number of days worth of stock on hand)
It is supposed to provide a safety net to the business, but the wrong calculation may also mean that the business now has excessive inventory that can become a financial burden.
FIFO and LIFO
FIFO (First In, First Out) and LIFO (Last In, First Out) are the techniques of inventory control that decide how the inventory moves. If a business chooses FIFO, the products that came first to the warehouse will be the ones sold first.
On the other hand, if a business chooses LIFO, the products that arrived last in the warehouse will be the ones sold first.
Tips to Improve Inventory Control
Businesses can follow these tips to improve inventory control:
Create Warehouse Layout Plans
Having an organized warehouse is essential to improving inventory control. Warehouse staff should know where the stock is located so that they can easily access it.
It can also help to place popular products in areas where they can be accessed quickly.
Inventory Forecasting
Having an adequate amount of inventory can increase the control businesses have over the inventory. This can happen with inventory forecasting.
In this, a business forecasts the future inventory needs by predicting how much of a particular product will sell. Metrics such as historical sales data, market trends, and other external factors are used.
Monitor the Product Expiry Dates
Product monitoring is essential for businesses to exert inventory control. This also includes keeping an eye on the expiry dates of products. Here, the businesses should target selling products that are nearing their expiry dates as soon as possible.
Once the expiry date is passed, the products won’t sell anymore, which can create numerous challenges for businesses.
Conclusion
Effective inventory control can become the key to a business’s success. It can help to keep the right amount of inventory, fasten the cash flow, and reduce the consumption of resources on inventory, etc.
Using automated inventory control software can amplify control while reducing the errors that can occur with manual procedures.
