Inventory Control
Inventory control: Best practices for boosting efficiency
When effective, inventory control is like a quiet machine. It’s only loud and noticeable when something’s wrong.
Maybe you consistently run out of best-selling products, leaving customers disappointed and driving them to the competition. Or, you’re stuck with a warehouse overflowing with unsold items that tie up your capital and increase storage costs.
If you don’t have an inventory control system in place to prevent these situations, you may have already experienced painful inefficiencies. Implementing the right processes is all you need to get back on track.
What’s inventory control?
Inventory control, also known as stock control, is managing a company’s inventory levels. This typically involves reducing the number of slow-moving items and increasing the supply of fast-moving ones, creating a balanced flow of stock.
But better inventory control is about more than moving and storing stock. Optimizing the flow of goods helps you save money on labor and space, using only the resources you need and leading to better warehouse management. It also reduces the risk of overstocking and spoilage because you avoid holding inventory for longer than necessary.
Types of inventory control systems
Inventory control systems fit into two main types: periodic and perpetual. Most businesses use a combination of both to count items as accurately as possible.
Periodic inventory system
A periodic inventory system involves updating inventory levels at specific intervals — generally weekly, monthly, or quarterly. For every period, you conduct a physical inventory count to determine the quantity and quality of goods on hand. This method is simple and cost-effective, ideal for small businesses with less complex inventory needs.
Perpetual inventory system
A perpetual inventory system updates inventory records in real time with every transaction, whether it's a sale, purchase, or return. This system uses technologies like barcode scanners and inventory management software to maintain accurate and up-to-date inventory levels at all times.
While the perpetual inventory method saves the effort of counting items one by one every week or month, periodic inventory counts a few times a year are recommended to ensure accuracy.
8 inventory control techniques and solutions
Inventory control methods range from primitive to high-tech, with options suitable for businesses of every size and complexity. Here are a few ways to count and maintain your stock.
1. ABC analysis
ABC analysis divides items into three categories: A (high value), B (moderate value), and C (low value). Instead of counting every product at once, you cover A items more frequently, followed by B and C. This method focuses your energy on the critical items that contribute most to the company's revenue and profitability.
2. Just-in-time (JIT) inventory
JIT inventory limits waste by reordering and receiving goods only as they’re needed in the production process, reducing overstock and storage costs. It’s especially useful for manufacturing businesses with high holding costs and predictable production processes.
3. Economic order quantity (EOQ)
Holding too little stock leads to frequent reorders and higher ordering costs. But ordering too much results in excess inventory and the potential for spoilage or obsolescence. Applying the EOQ formula helps you find the sweet spot:
For this formula, D is the total units needed in a year, S is the cost per order, and H is the holding cost per unit per year.
Say a bookstore sells 5,000 books per year. The cost to place an order is $50, and the holding cost per book per year is $2.
The bookstore could use the EOQ formula to find its optimal order quantity of 500 books:
Sometimes, suppliers or manufacturers offer discounts on bulk orders, either on the goods themselves or the shipping cost. Check to see if any of your suppliers offer a markdown on orders of a certain volume.
4. Safety stock
Safety stock is the extra inventory some businesses keep on hand as a buffer. It ensures there’s enough stock to meet unexpected increases in demand or deal with supply chain delays.
5. Batch tracking
Businesses in industries like pharmaceuticals or food and beverage sometimes need to trace goods for recalls or compliance. Batch tracking is a helpful technique that monitors a specific set of inventory throughout its lifecycle, allowing for clearer traceability.
6. First in, first out (FIFO) and last in, first out (LIFO)
FIFO and LIFO are inventory valuation methods that manage the physical flow of goods. FIFO uses or sells the oldest inventory items first, which is ideal for perishable goods. But LIFO uses or sells the newest items first, which can be beneficial for businesses facing rising costs. It’s up to you to decide which suits your product and business needs.
7. Custom tracking
Custom inventory tracking methods use attributes beyond serial numbers, lot numbers, and expiration dates to keep tabs on individual items and batches. A custom method can track other product qualities such as creation date, size, and more. Like batch tracking, this allows for a clearer view of a product’s lifecycle and whereabouts.
8. Vendor-managed inventory (VMI)
With VMI, the supplier manages the inventory levels for you, reducing the burden of inventory management. Usually, you send the supplier your sales numbers and let them decide how much to send. This collaborative approach streamlines the supply chain and ensures optimal inventory levels.
7 best practices for efficient inventory control
You won’t use every inventory control technique at once. Choose which works for your business and product. But no matter what strategies you use, here are seven tips for effective inventory management.
1. Conduct regular audits
Regular inventory counts ensure that records match the physical inventory, reducing discrepancies and improving accuracy. Doing periodic cycle counts instead of counting the full inventory saves time without sacrificing accuracy or disrupting operations.
2. Optimize reorder points
One highly effective way to prevent stockouts and overstocking is setting reorder points, which is easy with inventory control software. You should determine a minimum stock level to trigger reordering no matter which inventory control method you use. This way, if you’re running out of stock, there’s already a shipment coming your way.
3. Streamline receiving processes
The faster you receive incoming orders, the faster you organize stock for later fulfillment. Create a dedicated receiving area, train staff on proper procedures, and use technology like barcode scanners to expedite the process. Streamlining your receiving process ensures accurate inventory records and reduces the time it takes to check in new stock.
4. Establish standard operating procedures (SOPs)
Create SOPs for all aspects of inventory control, including storage, packing, and shipping, to maintain consistency throughout your warehouses and distribution centers. This way, team members have a single source of truth to learn from, leading to fast and consistent work.
5. Centralize inventory control
Inventory management systems and software allow for better coordination and control because they keep all information in one place. Even across multiple locations, you and your team know what items are where and what physical state they’re in, leading to more informed decisions about reordering and fulfillment.
6. Forecast demand accurately
Reports monitoring historical sales data, market trends, and predictive analytics are huge assets. They help you forecast demand and adjust inventory levels accordingly to reduce the risk of overstocking or stockouts.
7. Optimize storage space
Organized storage systems save space and make inventory easy to find and access. Categorizing inventory, implementing a logical layout, and using storage solutions like shelving and bins are great ways to optimize your storage space.
How to choose the right inventory control solution
Which solutions offer the inventory control your business needs? Here are some tips to help you decide.
Consider the types of products you sell
What you sell can help you determine the best inventory control solution. If your inventory includes food items, choose a method that prevents overstocking so nothing spoils. If your products are mainly small, fast-selling items, a VMI solution might be your best bet.
Assess your current setup
Do you have physical inventory in multiple warehouses? Do you use QuickBooks, Salesforce, or other business systems your solution needs to integrate with? Assess your setup and list the features you need, then choose a solution that can grow alongside you.
Determine a budget
Research multiple solutions, making note of training, software, and implementation costs. Then, compare those costs to the time and money you’ll save with the new system to decide what your company can afford.
Take control with Fishbowl
Even small businesses can benefit from having an inventory control software. A solution like Fishbowl automates processes, reduces human error, and provides valuable real-time insights into your inventory data. Fishbowl can also track inventory levels and integrate with business systems like QuickBooks to keep your inventory and accounting systems accurate and in sync.
If you’re ready to put inventory control into action, schedule a demo today.
Bring balance and predictability to your operations. We’ll show you how.
