What Is Inventory Control? Definition, Systems And How To Manage The Process

What is inventory control?

Inventory control is indispensable for businesses to stay competitive. Through inventory control, you will be able to maintain minimum inventory levels, ease your liquidity situation, keep costs down, maximize profits, and succeed in keeping your customers satisfied by delivering orders on time.

Manual inventory control might help to an extent. But as you scale, it leaves open a huge window for human error. To sustain certain growth in business and tap sales through multiple channels, you will need to take a more disciplined and structured approach to inventory control. 

Inventory Control Vs. Inventory Management

Many people use inventory management and inventory control interchangeably. However, the two terms mean different things and deal with different aspects of inventory.

Inventory Management encompasses the entire gamut of aspects related to your supply chain – right from tracking raw materials through to order fulfillment. Think of it as an umbrella term that includes what, when and how much you buy, stock and sell; managing suppliers and customers, how you manage product pricing, order fulfillment, returns, etc.

In other words, inventory management is the handling of inventory from sourcing to order fulfillment.

Inventory Control specifically refers to how you manage your stock, also called warehouse inventory. Managing warehouse inventory system gives you the ability to optimize your stocks in relation to sales in the most profitable manner by taking into account several factors that affect demand and supply for a product.

Importance of an effective Inventory Control strategy?

Good inventory control helps avoid missed order fulfillment and lost business. 

• By objectively forecasting demand, you can contain operational costs and achieve optimum operational efficiency
• When you plan for the right quantity of safety stock and the right reorder level of products, you avoid guesswork, human error, and business disruptions.
• With effective Inventory Control, you reap savings achieved by avoiding product deterioration, waste, pilferage, and outdated products.
• Through effective Inventory Control, you will be better prepared for unexpected supply outages or cyclical/seasonal spikes in demand and achieve better customer satisfaction. 

How to Master Inventory Control

Don’t guesstimate how much stock you need! As your business grows, you will find that objectively planned and optimized inventory control is key to business success.

Inventory control can be achieved by focusing on two quantities or numbers. The Economic Order Quantity or EOQ in short measures how much stock you need. This calculation is based on parameters like costs of sourcing and storing the inventory.

The other number that’s used for inventory control is the reorder point. This is the specific inventory level at which you need to order more stock for a product to continue selling it.

Economic Order Quantity or EOQ tells you how much product you need to order, while Reorder Point tells you at what inventory level you need to order again.

Let’s explore both calculations in more detail.

1. Economic Order Quantity or EOQ

Too little inventory and you can find yourself going out of stock, leading to unhappy customers. Too much and you end up with increased storage costs, spoilage, and damages or even product expiry. How can you decide what quantity of inventory is right for you? This is where using the EOQ formula can help.

Factors Considered While Arriving At The Right EOQ

1. Ordering Cost: all costs involved in ordering new stock (C)
2. Holding Cost: what you pay per unit per year for storage (H)
3. Demand: how much you expect to sell (D)

Economic Order Quantity = Q=√(2 X DC) / H

Let’s say that you sell Printed T-Shirts. One variant of these shirts sell at 400 units per year.

Hence the demand (D) for your product is 400 units

Let’s assume a few more numbers for the sake of this example.

Ordering costs (C) = $10 and Holding cost per unit per year = $6

EOQ =  Q = √(2 X DC) / H
= √(2 X 400 X 10) / 6
= √ (8000) / 6
= 15                    

The best EOQ for this product is 15 units at a time to minimize holding costs while also maximizing stock movement for the given demand.

2. Determining the Reorder Point

There are 3 important aspects to keep in mind while establishing reorder levels.

1. The Lead Time is the time needed in days to get fresh inventory from the supplier – knowing lead times helps you be better planned and prepared.
2. Daily Unit Sales constitutes what you sell on a typical day.
3. Safety Stock consists of the extra stock you have in your inventory to take care of delays, damaged supplies, unanticipated spikes in demand, etc., which help you to get by in the short term.

Reorder Point = Lead Time Demand + Safety Stock

Learn more about Reorder Point in our article here. This includes information on calculations as well as examples to help you calculate reorder levels by yourself.

Inventory Control Procedures

Know What You Have

In order to control your inventory accurately, you need to know how much stock you have on hand. You can do this through frequent counting. There is no procedure as necessary, and as fraught with errors, as inventory counting. Read more on how you can do it right in this article on stock reconciliation, and learn more about cycle counting.

Remember- accurate counting is only one half of the process. You need a way to carefully soft and store this data from repeat counts. This is where we highly recommend using an inventory management system.

Keep Track of Sales

For very long, inventory records were maintained on paper or in a spreadsheet format. Today, retailers understand the importance of using an inventory management system instead. While counting helps you get an accurate picture of your inventory at that point in time, this data needs to be studied in tandem with your sales numbers.

Keeping track of how much of your stock is being sold, shipped, returned or replaced is just as important for accurate inventory control within your warehouse.

How To Choose An Inventory Control Software

When choosing an inventory control software, ask yourself these questions:

• On what scale do you need this software to function? Will you be tracking a single warehouse or more than one? Even better, can you find a system that can scale with you as you add more storage locations?
• Do you need software to automate most of your inventory control?
• Once you shortlist a few products, do they fit your business needs specifically?
• Is the software product easy to use and quick to understand? You don’t want to spend months training your staff before you can switch to the new system.
• Is the software product integrated with all your sales channels to track sales and adjust inventory levels accordingly?
• Does the software have inventory reports to help you make decisions on restocking and changing up your catalog?
• Is the software product accessible from anywhere in the world and on any device?
• Is your data securely handled by this software, and can you decide on employee permissions?

Primaseller is an inventory control software that offers all of these benefits, and more. It lets you accurately maintain inventory at levels optimal for your business. You can set reorder levels for every product, or you can choose to run your business on backordering using Primaseller.

See more of Primaseller’s inventory control features here.

Why do we need to consider inventory control separately? Why can we not club it under the whole gamut of inventory management?

This is because inventory control provides better insight into stock levels in the warehouse and the best way, and times, to replenish stock. By managing this aspect with more attention to detail, you can avoid losses in storage, sell more optimally and also prevent running out of stock when you most need it.

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