reporting | 9 mins read

Inventory Control - The Ultimate Guide

inventory control the ultimate guide
Michelle Jaco

By Michelle Jaco

What is Inventory Control?

Inventory control is the process off managing your business' inventory stock. It helps companies account for the goods in their control and lets them put in place procedures to manage all items effectively.

Inventory control takes in several components including

  • Deciding the optimal amount of inventory your business should hold - Too much inventory will cost your business money to store and could lead to waste. Conversely, too little and you run the risk of being unable to fulfill orders, therefore losing out on sales.
  • Deciding when your business will order more of an item as it begins to run out - his helps ensure you can fulfill sales, maximizing revenue.
  • How inventory is managed while in stock - For example, storing it in a way that allows employees to find it easily, or that encourages older items to be used first.
Good inventory control systems ultimately ensure businesses always have the correct level of stock, enabling them to meet sales demand while reducing waste and storage costs.

Inventory control is closely related to inventory management, which is the entire process of looking after inventory, from purchasing the stock to turning it over and ordering more.

Inventory Control Methods

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When setting up inventory control procedures you can choose to do so manually or use software to automate some of the processes.

The option you choose will depend on factors such as the size of your business, the amount of stock you need to track, and whether you have the budget available to spend on the technology required to implement automated procedures.

With manual inventory control systems, the person in charge has to check all aspects of inventory control. This includes stock levels and when to replenish stock.

A manual system is more labor-intensive than an automated system. But, it is also cheaper as it doesn't require anything other than a notepad and a pen to take notes. In some cases, it may not even require that depending on the size of your business.

Manual inventory control is most suitable for small businesses that don't store a lot of stock.

A hotdog stand owner, for example, will have a good idea of how many hotdogs they will sell on a given day. Using this information, they can tell if stocks are low simply by looking at how many hotdogs and buns they have available.

However, as businesses being to grow, the process of manually controlling inventory can become more labor-intensive. Eventually, it will get to the point where the benefits of using an automated system make it worth the investment.

Software-based inventory control systems take care of many inventory control processes automatically.

They can be used to track stock levels of a large number of items and can be integrated with other tools, such as POS systems, to get more accurate measures.

Automated systems often give business owners further insight into their stock control procedures, helping them identify items that are frequently being wasted. They also often work with inventory management software to automate ordering.

These systems can reduce the amount of work employees have to do to track stock. However, they require an upfront investment to put in place the technology required.

How to Implement Effective Inventory Control

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To effectively perform inventory control, you'll need to define several metrics relating to the amount of stock your business has, as well as how you manage goods.

Here are the metrics you need to define

Optimum Levels of Stock
First, you'll need to define the optimum levels of stock for each of your products. Having a clear idea of this will ensure you always have enough merchandise or goods to fulfill orders while keeping costs down.

Your optimum level of stock will take into account the expected demand for the item, how quickly you can replenish the item, the cost of storing the item (warehousing costs, refrigeration costs, etc.), and the potential for waste if you are unable to sell the goods.

Define Safety Stock Levels
Some businesses may benefit from having safety stock. This is stock that you keep on top of your optimum levels in case of an emergency.

It can be particularly useful for items that are difficult to source or in situations where you are relying on a single supplier.

For example, a restaurant that relies on a rare ingredient that is only imported by a single company would benefit from having an excess supply of the rare ingredient. Without safety stock, the restaurant may struggle to fulfil orders should the supplier go bust and be unable to provide the item.

However, in situations where items are easily sourced, or where stock expires quickly, it may be unnecessaryor even costlyto keep safety stock.

Define Restock Levels
Restock levels are the levels a specific item needs to reach before you order more of said item.

Each item's restock level will consider the optimum level of stock, as well as factors such as expected demand for the item. If you use an automated system for inventory control, you may be able to set it to automatically alert you when items reach their restock level.

Integrate Inventory Control with Your Other Tools
Integrating inventory control with the other tools your business uses can improve the accuracy of your reporting. For example, by hooking it up to your Point-of-Sales (POS) system, you will get an automatic record of what you have sold.

Use a First-in-First-Out System
A first-in-first-out system is when you use stock in the order it comes into your business. This helps reduce waste by encouraging you to use older items before newer ones.

This type of system is especially useful for businesses that deal with perishable items, for example, supermarkets or restaurants. By using the older items first, they reduce the chance of these perishables reaching their expiry dates.

One way to encourage a first-in-first-out system is to simply ensure that your employees always stock items by placing new goods at the back of shelves and moving old stock to the front.

Clearly Define Item Locations
Another method of inventory control is to clearly define where you keep items and have a system that makes it easy for your employees to find said products.

It can help to have items with a high consumption value, i.e. those that you sell a lot of and that make up a high proportion of your revenue, in easy to access locations. Items that make up less of your overall revenue can be given less priority.

Train Your Employees
For your inventory procedures to be effective, you should train your staff on what they are expected to do. This can be especially important in, for example, procedures relating to first-in-first-out.

If you use a manual inventory control system, it can also help to teach employees to spot when items are reaching their reorder level.

Perform Manual Stocktakes, Even if You Use an Automatic System
While using an automated, digital solution offers significant benefits when it comes to inventory control, you should still perform regular manual stocktakes. This will put the spotlight on any potential errors within your system.

This is especially true in the case of perishable goods. While your automated system may show that you have plenty of an ingredient, if your team hasn't been rotating stock effectively, you may find that much of your supply is in danger of being unusable.

Benefits of a Strong Inventory Control System

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Good inventory control procedures offer multiple benefits for businesses. These include maximizing sales, reducing costs, and providing a great customer experience.

Here are the benefits of good inventory control

Maximal Sales
Consumers will typically shop at a competitor if an item was unavailable at the initial business. Ensuring your business always has items in stock means you won't ever miss out on sales due to items being unavailable. This will increase revenue.

Increased Profit
Good inventory control processes can increase profits by reducing the chance of overstocking. This will cut storage costs and reduce the chance of waste, meaning you earn more per item sold.

Improve Cashflow
Another benefit of having an optimal level of stock is that you'll have more cash available and less money stuck in excess stock. You can put this cash towards other uses such as paying off debt or business development.

A Better Customer Experience
We've all been in a situation where we want to buy something but can't because it is sold out. Unless the business is intentionally limiting stock to produce a feeling of scarcity, it can provide a poor customer experience.

Unfortunately, research shows that people will never use a company again after a single negative experience. Ensuring your business always has enough stock to satisfy customer demand will reduce the chance of negative experiences occurring, keeping customers loyal.

Reduce Waste
The cost of waste is in the amount of billions to consumer-facing businesses in the US.

Inventory control helps your business reduce waste by tracking it and showing where and why waste is happening.

There are many reasons why you want to reduce waste, from the extra time your employees spend processing it to the environmental impact.

However, from a business point of view, the biggest reason is simply that when you throw away waste stock, you are throwing away not only the money you spent on the produce but also the chance to make a profit from said stock.

More Informed Inventory Decisions
Using a software tool with analytics features allows you to easily see where stock is being wasted or where levels are low. This allows you to make more informed businesses decisions about what to buy and what to cut down on. It can also help you identify where you could work in a more optimal way.

Having good inventory control processes are important to the effective management of your stock. While smaller businesses may be able to get away without optimized processes, larger businesses and those that deal with a lot of inventory will generally benefit from more in-depth systems.

Good inventory control procedures should be used alongside inventory management techniques. You can read more about these in our article here.