The Importance of Inventory Control

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Inventory control is essentially about reducing costs and improving service. It is also how you manage your working capital to maintain consistent and adequate cash flow.

Achieving effective inventory control is accomplished by having the right product, in the right place, at the right time. Maintaining the stock necessary to meet customer’s needs, deliver on quality expectations and to minimize the numerous costs associated with holding inventory.

The three primary objectives of controlling inventory are to manage levels, safeguard inventory and to report it correctly on financial statements.

Managing inventory control

Stock control consists of all the activities and processes undertaken to track inventory levels, place orders and to ensure adequate quantities of each item is held in stock. A regular review of stock movements gives managers the ability to set and adjust predetermined stock quantities as required, to maintain minimum inventory levels.

In some industries, it is necessary to segregate inventory into specific batches that require close management of quality, quantity and traceability. Special attention is needed to manage the receipt and distribution of products that are categorised as regulated goods or batch and/or expiry date controlled.

Knowing and tracking your on-hand stock at any given point provides a clear view of what is happening in the organization and helps to ensure capital is not tied up in superfluous stock you don’t need.


Inventory represents a cost to your business that has yet to be realized as revenue. Controls are necessary to safeguard inventory and protect this investment.

Storage and security measures should work to limit damage or spoilage of items and to prevent customer or employee theft. Restrict access to storage areas to authorized employees only and place high-priced inventory into locked cabinets or secure storage facilities.

Technology such as alarms, locking systems and security doors can reduce incidents of internal theft and break-ins. In addition, the use of security cameras can discourage employees from attempting to steal and will also help to identify offenders if theft do occur.


Inventories represent a significant portion of the assets of many companies. Therefore, how inventories are measured and reported is important in determining the financial performance and position of an organization.

Leveraging technology will optimize inventory management allowing you to gather timely, accurate and transparent data to generate reliable financial and operational results.

The accounting method chosen for measuring inventories must be recorded and disclosed for tax purposes. Accurate data provides greater accuracy when calculating the tax on certain stock items, helping to avoid penalties for underpayment.


Inventory control involves having knowledge of what products are in stock, where they are and how much of each item is available. Efficient inventory control will reduce inventory investment and minimize handling cost without adversely impacting customer satisfaction levels.

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Melanie - Unleashed Software

Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.

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