Stock control is a necessity for every business that deals in physical goods. Done well, stock control maximises profits and builds customer loyalty; done badly, it can lead to business failure. Here are the basic elements of good stock control, including definitions, methods and tools used.
Stock control definition
Stock control is the process of keeping stock within a business between defined limits, so that there is enough stock to meet customer demand while minimising the the impacts of overstocking.
What is stock control?
While stock control is easily defined, in practice it takes expertise, time, and tools. Also known as inventory control, stock control involves keeping each different product line within its own minimum and maximum levels, so the business can fulfil orders without delay, while keeping stock holding costs to a minimum.
The immediate impact of overstocking that businesses try to avoid is the capital outlay required to buy the stock. While this money is still in the business when stock is purchased – and in principle ought to turn into profit when those goods are sold – buying stock locks cash up in physical goods, meaning it can’t be spent on other parts of the business. Buying stock also introduces an element of financial risk.
Stock that is purchased but doesn’t sell can become waste – whether by expiring, becoming unsaleable, or from being damaged – and storing stock costs money: 3PL warehouses charge by volume, so carrying more stock than is needed to meet demand represents an ongoing drain on finances.
Ultimately stock control can be the difference between loss and profit. Done right, it keeps costs down while increasing profitability on every sale.
Stock control methods
Popular stock control methods include:
- Just-in-time (JIT) stock control
- Just-in-case stock control
- FIFO (First-In, First-Out)
- Economic Order Quantity
- Vendor-managed inventory
- Batch control
Regardless of which method you use, you need to have a stock control system in place.
Stock control systems
A stock control system, also known as an inventory control system, incorporates all the functions are associated with inventory management and maintenance. It should encompass everything from purchasing, product tracking, and product turnover, to storage inputs, shipping and receiving and re-ordering products.
The most basic, manual system is writing it down in a stock book, on a stock card or using spreadsheets. While this works for a business just starting out, it cannot be sustained as a business grows. For that, you need an automated stock control system.
Features of a stock control system
An automated inventory control system helps businesses maintain a competitive edge and maximises productivity. An automated system should:
- Support real-time, perpetual inventory tracking. This means keeping track of inventory as it moves; you don’t want to run your business using outdated stock figures as it can harm your supply chain
- Support sales and shipping. You’ll want a system that can generate fulfilment documentation such as picking and packing notes, and invoices
- Support procurement. Features such as automated reordering and supplier price lists reduce friction in the purchasing process
- Integrate with other programs. If you’re looking for maximum efficiency and accuracy, make sure your chosen system integrates with your CRM, ERP, accounting or other management systems
- Generate useful reports. Important types of inventory reports include inventory summaries and totals, transaction reports and order history
Stock control software
Now that you know what to look out for in your inventory control system, you need to decide what stock control software works best for your business.
Talk to the relevant people in your business, then come up with a checklist of features you want. It may include the following:
- Ability to use multiple currencies
- Ability to cover multiple warehouses
- Can adapt to your business as it grows
- Serial/Batch tracking
- Support multiple users at once
Growing businesses should look to cloud software for stock control. There are many benefits to having your business in the cloud. Businesses that have scaled their business efficiently with cloud-based software include:
- Traders Warehouse, a UK-based electronic security equipment distributor
- Montana Colors AU, the leading supplier of graffiti art products in Australia
- Good Buzz, kombucha maker and retailer based in New Zealand
- La Tortilleria, makers and suppliers of authentic Mexican corn tortillas, tortilla chips in Australia
- Seven Bro7hers Brewery, UK-based brewery run by seven brothers who all share a passion for beer
The stock ordering process
Getting the stock ordering process right is an important part of effective stock control. When reviewing your stock ordering it’s recommended that you:
1. Stick to a single inventory control system
It is important to ascertain from the beginning what type of inventory system would best suit your business. The two options are periodic systems or perpetual systems, of which the latter is highly recommended for accuracy and ease of use.
2. Review current inventory
You need to determine what you have on hand and its value – including finished goods and raw materials. Look at your sales reports to identify your best sellers, which are making the most gross margin, and which items are slow-moving and old.
- Learn more: 23 Types of Inventory You Should Know
3. Determine your ideal stock levels
Now you need to identify stock you always need and decide on what your maximum and minimum stock levels are for each item; it’s also important to determine the minimum re-order level for each item. Once you’ve identified the parameters, it’s easier to know what you have to work with.
You’ll also need to keep accurate stock records and make sure they match what you actually have on hand with a stocktake.
4. Constantly review inventory control
Ask yourself how stock management impacts the other areas of your business. Consider:
- Monitoring inventory metrics. One way to tell how well your current process is working is to look at the stock turn rate
- Reviewing your purchasing patterns. Purchasing should be based on sales history and demand forecasting
- Ordering less stock more frequently. This can improve liquidity without reducing sales
- Consider the impact of marketing and promotion. Before launching a sales promotion, make sure you have enough stock to meet an increase in demand
- Having a back-up plan if items don’t sell as well as you wanted it to. Regardless of whether you return it to suppliers or donate it, make sure you know how to dispose of excess stock quickly
- Reviewing your sales policies. Your sales team can strategically sell fast-moving items and clear slow-moving items
- Storing your items more efficiently. Correct warehousing techniques are essential for best practice. Make picking and packing streamlined and efficient by storing slow-moving products at the back of the warehouse, and fast-moving goods close to the front where they are more readily accessible
These are just some of the many aspects of stock control that should be considered. It is a good idea to start how you intend to carry on, that is, by implementing an inventory management software system that is expertly designed to facilitate excellent stock control.