Inventory control is managing a company’s inventory, or stock, from the time it lands in the warehouse to the time it leaves. Good inventory control balances the cost of holding inventory against the risk of stockouts, with an overall goal of maximising efficiency.
Learn all about inventory control – including the inventory control systems used to track and organise the stock that you have on hand – in our guide to this pivotal part of inventory management
What is inventory control?
Inventory control is the portion of your inventory management system
that involves what’s currently on hand. Essentially, it’s about effectively managing where your stock is and what condition it’s in — taking when it arrives and departs your warehouse into account.
Is inventory control the same as inventory management?
At first glance, inventory control looks very similar to inventory management. While they are closely related, inventory control ignores all the other factors that make up inventory management: including purchasing, production, sales and reporting
. So really it’s just one part of your inventory management system, albeit an important one
Which businesses need inventory control?
Any business that handles stock
will need inventory control of some form. How much you’ll need it depends on how important your products are tiso your business’s success. Any of these businesses will find it absolutely crucial:
- Wholesalers and distributors
- Food/beverage producers, including brewers
What materials does it cover?
Inventory control doesn’t just mean organising your finished goods
. Any materials or ingredients that you need in order to sell your product need to be taken into account. Manufacturers, for example, will include raw materials and components too.
Why is stock control important?
is important for maintaining low costs and high profits. When businesses lose sight of their stock
, productivity will suffer.
When running smoothly, inventory control ensures that your business is set up in a way that enables staff to assemble and send products to customers as quickly as possible. With badly managed goods, you’ll lose sight over where your stock is, how much you have, and what you can currently sell.
There are two other key reasons for paying attention to stock control
: reducing holding costs and shortage costs
Storing inventory costs money, which makes maximising efficiency as much as possible important. A company with a tight grip on its stock can do more with what’s on hand, meaning they have to store less. They’ll also know exactly when to reorder products, so they can keep levels low without risking stockouts.
Shortage costs are incurred when a business runs out of stock: meaning employees are idle, your machines are under-utilised and more. And that’s on top of the opportunity cost of any lost sales due to lack of stock. Better inventory control means fewer stockouts, lowering shortage costs.
For a start-up business with simple stock needs, optimal inventory control shouldn’t be too hard to attain. However, there are challenges that businesses of all sizes face. And the more moving parts you add, the harder it’ll be to keep on top of everything.
Inventory control best practice
There’s no single ‘top’ method to control your inventory – and there are several different approaches
and models used
. Your best practice
will depend on your business’s unique needs. That said, it’s usually easy to spot the difference between a company with optimal control, and one without. Here are three things to aim for:
1. Set procedures and policy
Perhaps the easiest way to achieve an organised warehouse
is to pick your procedures and policy
, then ensure that everyone in the business follows them. For example, decide what should happen when new stock needs ordering — and then how to record it when it arrives.
With all your staff working in sync, you’ll be able to reduce wasted stock (say, from breakages or theft), keep one source of inventory information and take stock with ease.
2. Knowing everything that goes out the door
Sometimes products may leave the warehouse without being allocated as a sale. For instance, your business may sponsor an event, donate to a charity, or have some damaged goods from time to time. Companies with sub-optimal inventory control often fail to record these departures properly, meaning they end up getting marked as lost goods and final reports are incorrect
3. Being proactive
The companies that master inventory control tend to have one thing in common — instead of passively waiting for problems to arise, they constantly watch out for improvements they can make to their system. New technologies such as RFID
or barcode tracking, for instance, can make keeping stock organised much easier by reliably gathering quality data
Stocktaking and inventory control
Stocktaking — when you count and record the inventory that your business has on hand — is an important part of inventory control. After a stock count, you should know exactly what you currently have to sell.
If the levels from your count differ widely from what the figures you have in your system, it might be a sign that your inventory control could be improved. Even if they don’t, having accurate information on your stock is a great start at improving efficiency.
Learn more about stocktaking
Stock control systems
Just as inventory control is part of inventory management, your inventory control system
is dictated by your inventory management system
. They are two main ways of recording stock movements: doing it manually
Manual inventory control
Periodic inventory systems
, which rely entirely on stocktakes for up-to-date stock levels, are the simplest form of manual inventory control.
If you want to keep a closer eye on your levels, you’ll need a perpetual system
. For small businesses
with simple stock needs, a spreadsheet or a stock book that you update whenever anything arrives, leaves or moves around the warehouse might well be enough. Many businesses, though, will require something more sophisticated
Automated inventory control
Dedicated inventory management software provides a means to track and organise your stock using the cloud. You can combine it with sophisticated tools such as barcode scanners and warehouse management systems, enabling you to:
- Know precisely what’s in stock at any given time
- View sales trends, and forecast demand
- Identify and rectify discrepancies immediately
- Prevent stockouts
- Save time on manual stocktakes
This all becomes increasingly important as your business grows more complex. Ensuring that all your products are in the right place, for example, becomes much more difficult when you have multiple warehouses to manage. Automated inventory systems make this task much easier, offering accessible information on every item, including its:
- Unique ID number
- Current location
- Selling price/RRP
- Batch/serial number
- Manufacturing cost
- Any associated tax costs
Find out more about inventory management systems
Improving inventory control: 3 top tips
There are lots of different ways to improve your inventory control
. Here 3 top tips to get you started.
1. Correctly classify products
Categorising your products and components into an easy-to-understand, user-friendly system is a solid first step towards proper inventory control.
The methods for classifying goods can differ from company to company, but there are a few common methods you can employ. The ABC method, for example, categorises items according to their value and documentation requirements.
2. Consider warehouse management
Warehouse management is all about improving the effectiveness of your warehouse and its staff. Warehouse management software will often come with a flexible location system and customised categorisation for easy storage, movement and picking. Such a system will increase inventory accuracy while reducing cycle times and handling costs.
3. Improve supplier relationships
Supplier issues will often end up impacting your inventory control strategies. Building solid relationships with all your suppliers is imperative if you want your business to run smoothly — so make sure to review all your suppliers regularly to ensure the partnership is working for both parties. If you don’t think it is, it might be time to find a new supplier.
Just-in-time inventory control
Just in time (JIT)
is an inventory technique that seeks to keep levels of stock on hand as low as possible. After all, any stock that you have in the warehouse is both costing you money and at risk of never being sold (if it gets damaged or becomes obsolete, for instance).
For wholesalers and distributors, JIT means products spend almost no time in the warehouse before it’s bought by your customers. For manufacturers, it means materials, components or ingredients arrive immediately before they’re used in the production process — and that finished goods aren’t sitting around before they are sold. That way, the costs and risks associated with holding goods are kept to an absolute minimum.
JIT is a powerful technique, but it’s notoriously difficult to achieve. Get it wrong, and you risk stockouts: and the lost sales that accompany them. To get it right, you need complete oversight over your suppliers
, your manufacturing line (if you have one) and your customer demand
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