What is inventory control methods?
Inventory control is a set of tools and techniques that allow business managers to manage the inventory of goods they either manufacture or sell. The goal of inventory control is to ensure that there is no over or underproduction and that the right amount of inventory is in stock at all times. It is important for companies that produce goods to maintain proper inventory levels because it helps them minimize their costs and maximize profits.
Inventory Control Methods- What's the Best Way to Manage Your Inventory
What is Inventory Management?
Inventory management is the process of tracking and managing the stock of a company's products. It helps in keeping track of all products that are in an organization's possession, whether it be in a warehouse or a retail store. This includes counting inventory and performing financial management processes, such as invoicing, calculating the amount of profit generated from specific products, and determining how much stock needs to be ordered for future sales. The inventory management process is essential for any business that sells products at some point during its lifecycle. It is a way to make sure that there is enough stock to meet customer demand and keep the business operational. Small businesses need an inventory management system to keep a track of inventory throughout the supply chain process from arranging of raw materials to the delivery of finished goods. However, with the high volume of products being sold these days, this process can become complicated due to the increased amounts of data involved. Inventory management software like Zip Inventory can help streamline this process by automating and simplifying various processes such as ordering, receiving goods, stocking shelves, tracking inventory through each stage of the supply chain, and more.
Based on several case studies, good inventory management systems allow business owners to manage their business with ease. Traditional inventory management required physical inventory counts that could increase carrying costs and hurt the company's bottom line. Medium and small businesses may face challenges in performing the cycle counts, as manual cycle counting is prone to human errors. Small businesses can opt for perpetual inventory systems that provide automated cycle counts and real-time inventory tracking capabilities. Inventory management software, such as Zip Inventory has warehouse management features that track how much inventory is available and which products are required to be ordered.
What are Various Types of Inventory Control Methods?
Inventory control is a set of tools and techniques that allow business managers to manage the inventory of goods they either manufacture or sell. The goal of inventory control is to ensure that there is no over or underproduction and that the right amount of goods is in stock at all times. It is crucial for small businesses that produce goods to maintain proper stock levels because it helps them minimize their costs and maximize profits.
Inventory control is an organized set of procedures that can manage the flow of materials from suppliers to customers by ensuring that products are available when needed while preventing unnecessary stockouts. This practice ensures that you do not have excess or insufficient quantities of items and that you do not spend too much on unimportant things at any given time. So, what exactly is inventory control? Inventory control means controlling the flow of raw materials from suppliers to customers so they are available when needed and preventing unnecessary stockouts during distribution operations through sales channels like point-of-sale systems, mobile apps, etc.
Having best practices in inventory control is essential for any business to maximize customer service and reduce holding costs. If you have a business that deals with a product, it is essential to use an inventory control system for effective inventory control and keep track of excess stock. It is also important to identify which items are hot sellers and those that are in low demand so that you can restock them more often.
Here is an inventory management guide to the various methods to control inventory-
What's the best way to manage your inventory?
Zip Inventory’s Inventory control methods often include managing product cost and determining the optimal replenishment levels
1. Economic Order Quantity (EOQ)-
EOQ is the minimum quantity of raw materials small business owners need to purchase to produce finished goods. EOQ is a formula that includes several business variables, such as demand rate, total costs of production, etc. The main aim of EOQ is to reduce related costs. The formula determines the highest number of raw materials required to reduce purchasing. EOQ allows business owners to free cash flow stuck in inventory to produce finished goods.
2. Minimum Order Quantity (MOQ)-
MOQ is the lowest quantity of stock in inventory a supplier is required to sell. MOQ is the lowest amount of finished products a retailer must buy from the supplier. The supplier will not sell the number of finished products to a retailer if it is less than the MOQ.
3. ABC Analysis-
ABC analysis is one of the most effective inventory management techniques that categorizes the stocks in inventory in three sets. The ABC analysis technique identifies the amount of stock that has more impact on the costs of inventory. ABC analysis categorizes stocks based on demand, risk, and cost and allows companies to focus their resources on stocks with the highest impact on profits.
Category A- These are the high-impact stocks in the inventory that provide the highest profits.
Category B- These stocks have a moderate impact on the overall profit of the business owners.
Category C- These stocks have a low impact on the profits of the company.
Inventory control methods can be confusing and often require a lot of work
With Zip inventory’s control software, you can manage your inventory levels quickly and easily
4. Just-In-Time (JIT) Inventory Management-
In the JIT inventory management technique, raw materials arrive from suppliers just before production is scheduled. JIT technique allows business owners to minimize inventory costs as raw materials are received on a need basis, with the risk of overstocking or dead stocks.
5. Safety Stock-
Safety stock technique refers to ordering extra stock par levels to prevent stockouts usually caused by wrong demand forecasting or fluctuations in customer demand. Safety stocks involve a certain amount of holding costs, as they required additional storage in the warehouse, but it is crucial for businesses that face the risk of stalled production due to a lack of raw materials.
6. Reorder Point Inventory Management-
The reorder point is the minimum level of inventory that a company needs to meet production requirements. It is a point at which the company requires to reorder that particular raw material. Business owners need to consider lead time before ordering new inventory.
7. Lean Six Sigma Technique-
Lean Six Sigma is a management tool to reduce excess stock and enhance stock control. Six Sigma and Lean involve implementing best practices in Inventory Management. Business owners can minimize unnecessary business inventory by utilizing Lean Six Sigma tools.
8. Inventory Turnover Ratio
Inventory turnover ratio is the number of times a company's inventory is sold in a year, divided by the cost of that inventory. It's an important business metric because it measures how efficient your company is at turning its inventory over. In other words, it tells you how many units you sell to your customers for every dollar of inventory costs. Businesses with ITR between 5 and 10 represent better sales. The inventory turnover ratio is derived by dividing the cost of goods sold by the average inventory for a given time.
9. First In, First Out (FIFO) Technique-
The First In First Out management technique is a method of storing and rotating inventory. FIFO technique requires first selling products that have been sitting in the warehouse for the longest time. The inventory that has been purchased first is utilized first to the cost of goods sold. FIFO technique implements Best Inventory management practices to keep the inventory fresh and reduce spoilage.
10. Demand Forecasting
Demand forecasting is a technique of estimating which products will sell, how much will sell, and when will it sell. There are several methods of demand forecasting, including analysis of past sales and traditional methods such as predicting or guessing. Demand forecasting allows business owners to make better decisions related to inventory needs in advance. Companies can estimate how much inventory will be required to plan production, managed inventory, or venture into a new market.
With so many options for managing inventory, how do you know which one is best for your company?
Zip Inventory offers a range of inventory management options that will suit your needs
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Frequently Asked Questions
What are different inventory management techniques?
Inventory management is an important part of any business. It's one of the first parts of a business that you should understand, as it helps with how your business operates in its entirety. What are some different inventory management techniques?
What are inventory control systems?
Inventory control systems are a key part of any business. They are used to track and manage the items that a company has on hand and what items have been ordered in advance. When an item is sold, it can be quickly reassigned to another customer, or the company can use this information for future planning. Inventory control systems can also help businesses handle stockouts, which might occur due to an unexpected demand for a product or the lack of availability in certain stores or areas.
What are 4 stock control methods?
Stock control is the collection of methods used to manage a company's inventory. Ideally, stock control helps a business reduce costs and maximize profits by carrying only what it needs and selling when it needs to. A variety of methods exist for managing inventory, including open-to-buy, limited-stock order (LSO), pro-rata, first-in-first-out (FIFO), last-in-first-out (LIFO), the weighted average cost of capital (WACC). There are pros and cons for each method as well as variations that can be made depending on the need of a particular business.