March 29, 2024

What is Inventory Control System? Types, Facts and Best Practices

Inventory is the heart of the retail business which is always at the center of day-to-day operations. That’s why an inventory control system is essential to offer a seamless customer experience and run things smoothly. It helps retailers monitor stock, track products in real time, and make accurate purchasing decisions.

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What is Inventory Control?

Inventory control is a day-to-day activity that involves managing stock. It involves receiving and storing stock within the warehouse as well as transferring. The process also included keeping track of order fulfillment and returns.

Simply put, inventory control is a process that defines the flow of your stock. It provides a clear picture of stock rotation and you can see how products are managed within the warehouse. You can manage inventory levels by tracking the movement of the items throughout their storage. Stock is monitored from the moment they are ordered to their disposal, to ensure the right amount of supply is available within the warehouse.

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Difference between inventory management and inventory control

Inventory management involves ordering and managing stock along with forecasting demand. It emphasizes order management i.e. what to order, how much to order, and when to order. Thus, inventory management provides information and forecasts what customers will want to purchase. As a result, you can place orders accordingly to meet your customers' demands.

Inventory control, on the other hand, is a part of inventory management. It only deals with the stock which is already present and its movement within the warehouse. Inventory control allows you to keep track of products, their condition, and quantities. Overall, inventory control is all about supervising the stock rotation. 

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Types of Inventory Control System

Multi-chain businesses normally employ inventory control systems to manage their supply chains. This is the technology that integrates with the system and automates a lot of manual processes. With an inventory control system, they can manage purchasing, shipping, and receiving as well as warehousing, order fulfillment, and returns in a single system.

There are two key inventory control systems used by multi-store retailers right now.

Perpetual Inventory System

This is an inventory control system that offers real-time insights. A perpetual system scans and adds the products as soon as it is received. Similarly, when the barcode is scanned and the product is sold, the system removes it from the global inventory.

Perpetual Inventory System

Thus, the perpetual inventory keeps an accurate record of inventory levels on a global scale. It ensures that each part of your business has access to the information in real-time. You can know the stock quantity because the system instantly updates itself after every transaction. That’s why it is considered more suitable for multi-chain businesses with high volume sales.

Periodic Inventory System

As the name gives it away, this is an inventory system that updates itself after specific intervals. Without the physical count, you cannot know the product quantity in stock. And the manual count is a process that usually takes time and resources. This is only suitable for small enterprises with lower inventory levels.

Periodic Inventory System

The problem with a periodic inventory system is that you have to do a physical check. You cannot be sure whether your stock account is accurate. That’s why most businesses prefer a perpetual inventory control system.

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Inventory Control Useful Facts

Below are some interesting and useful facts that even most retailers don’t know about. These are the stats that’ll surely change your perspective about inventory control.

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Inventory Control Standard Operating Procedure

Businesses can manage inventory control effectively by following a standard operating procedure. Inventory control SOPs educate the responsible staff and enable them to manage the stock efficiently. Below are standardized operating procedures that must be followed for a better inventory control.

Receiving Goods and Supplies

The first step in inventory control is receiving the goods. Make sure your staff documents each product and its quantity as soon as it is received. This is the gateway to your warehouse, so keep a check on items that enter your warehouse.

The persons responsible should visually inspect the shipment and report if any product is damaged. Similarly, they should refuse to receive or report immediately in case shipping is incomplete.

Storing the Products

This goes without saying. Every item and product has specific storage requirements that must be fulfilled. Mostly retail products have environmental requirements or need to be stored in a specific position. Some products come with a prerequisite of certain temperatures as well.

So, your inventory system should showcase and keep track of such requirements. Only an organized inventory will help you store and identify items with respect to their requirements.

Scheduling and Rotation

Another key factor in inventory control is scheduling and establishing inspection dates. Make sure items are documented and picked for order filling with respect to their expiration dates. The oldest products must be picked and sold first from the stock. Moreover, make sure expired items are disposed of and shown in the loss to keep proper track of the inventory.

Securing the Inventory

There are several factors behind inventory loss but none is more dreadful than theft. To ensure the security of your inventory, you must take precautionary measures. This involves limiting personnel access, hiring security guards, and installing security cameras.

Shipping Procedure

One of the most crucial steps of inventory control is how you manage your shipping. This is the point where mishaps happen and errors are encountered. You must ensure that when items leave your inventory, they are properly removed and documented. Otherwise, you may have to deal with excess inventory and have to put effort into resolving the issues.

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Importance of Managing Inventory

Inventory control is the most crucial part of any management strategy. The process runs smoothly when you have the right system running. Below is a list of ways how inventory control strengthens a multi-store retail business.

Provides Organizational Control

An organized stock does make a difference when it comes to running a multi-chain business. With an effective inventory control system, you can easily label your stock, the staff can easily read them, and the shipping process becomes easy.

Maintains Accuracy 

One of the key reasons why major retailers go for an inventory control system is the accuracy that it offers. You can keep an eye on stock in real-time and know how many units are in store. Thus, you can manage and monitor stock levels as they change over time.

Quality Control

Inventory control certainly makes a dramatic impact on quality control. It helps you manage stock efficiently by identifying damaged items as soon as they enter your stock. You can keep track of each unit from stocking to ordering. Furthermore, you can set quality standards with vendors and build a long-term healthy partnership without compromising quality.

Reduces Write-Offs

Damaged products, lost items, and overstocked seasonal products need to write-off. But this often becomes a challenge for multi-chain retail businesses. This is where an effective inventory control system can help you out by keeping tracks.

Balances Supply and Demand 

One of the main benefits of inventory control is perhaps the supply and chain balance. It helps you manage the stock above the minimum and below the maximum level. Thus, you won’t face under or overstocking issues and will have enough products to meet your customers’ demands.

Helps You Measure Changes 

The success of a retail business lies in knowing the accurate units stored in stock. However, to manage your business efficiently, you must know the numbers in real-time. An inventory control system not only helps you manage and monitor stock but also offer reports to measure changes. You can view previous and current trends to make decisions accordingly.

Get A Free Demo of the next-generation inventory management system to sync your stock across multiple channels and platforms.

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Functions of Inventory Control

The importance of inventory control cannot be overlooked as it is directly associated with enterprise management and customer satisfaction. The main functions of inventory control is:

  • To meet the production requirements of the enterprise by maintaining specified inputs
  • To ensure the timely availability of products
  • To achieve the inventory control objectives
  • To protect inventories from improper material handling
  • To effectively manage storage space
  • To do pricing for cost estimation of final products
  • To develop policies, plans and standards required

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Inventory Control Forecasting Methods

The procedure of calculating inventory needs in order to satisfy future customer orders is known as inventory forecasting. Below are the most commonly used methods for inventory control forecasting

Inventory categorization using ABC Analysis

The most effective inventory control forecasting method is perhaps the ABC analysis. In this forecasting technique, on-hand stock is categorized in three different groups A, B, and C.

A group consists of high value items that have low sales frequency. These are the products whose sales are unpredictable but their impact on budget is significant. B group contains products which have modest sales frequency and value. In the C group, items of high sales frequency and low value are placed. These products deliver constant turnover but have less monetary impact.

Thus, ABC analysis can help divide items with respect to their value and sales frequency. Furthermore, you can set up storage locations for each category item. But the best part is that you can also set different SOPs for inventory control and audit for each class.

Inventory categorization using ABC Analysis

Reorder Point (ROP) Formula

This is a mathematical technique that tells you when you should restock your inventory. You can measure ROP of your inventory by adding safety stock (SS) and lead time demand (LTD). The reorder point will tell you the minimum number of product units that you should have in stock.

Once your inventory reaches reorder point (ROP), you must replenish your stock. Thus, it keeps a balance and your inventory never runs out of stock.

The formula to calculate reorder point (ROP)

(Averge Daily Unit Sales * Delivery Lead Time) + Safety Stock

Economic Order Quantity (EOQ)

Multi-chain retail businesses can improve their overall inventory management process by using EOQ. It provides retailers with the optimal amount of inventory that they should buy. The economic order quantity (EOQ) formula comes handy when both ordering and holding cost as well as demands are consistent.

The formula to calculate Economic Order Quantity (EOQ)

EOQ = square root of: [2(Setup Costs)(Demand rate)] / Holding Costs

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9 Ways to Control Stocks

Controlling stock is a tedious task, especially for multi-store retail businesses. You need the right strategy to maintain the minimum stock in order to prevent any supply chain issues. Below are some of the most effective stock control strategies that are being followed by retailers.

9 Ways to Control Stocks

First-In, First Out (FIFO)

The most straightforward approach for inventory control is the first-in, first-out FIFO method. This tactic involves shipping the items that are the oldest. Simply put, you will be selling the stock that has been sitting in the warehouse for the longest. This strategy is more useful for perishable items and helps you prevent expired stock.

FIFO is also a suitable approach in terms of profitability. That’s because newer products generally carry a higher cost as compared to older products. So, when you sell older items (products with lower costs), you can earn high profits due to potential price increase.

Last-In, First Out (LIFO)

This inventory control method is exactly the opposite of the FIFO approach. In last-in, first-out (LIFO), the most recently acquired items are shipped. Businesses follow this strategy when the market is slow and prices are rising steadily. Since most recently acquired products have the highest cost, this will result in lower taxable income.

Min-Max Inventory Control

This is a stock control approach which allows retailers to manage their on-hand inventory. They can manage and keep the stock within a desired range. Retailers only reorder when the inventory hits the minimum level. On the contrary, only enough quantity is ordered to restock the product to the maximum level set by the retailers.

Just-In-Time (JIT) Inventory

This is an inventory control strategy that resembles the min-max approach. Retailers order the raw material only when it is needed and ensure the stock arrives just when it is needed. The basic purpose behind JIT is to have the minimum amount of inventory.

Commercial self storage facilities can serve as a strategic asset for retailers implementing just-in-time (JIT) inventory management methods. By leveraging commercial self storage solutions, retailers can mitigate the risk of stockouts inherent in JIT systems. Maintaining a robust supplier relationship is also vital, as it ensures timely replenishment of inventory levels, further bolstering the effectiveness of JIT practices.

Two or Three-Bin System

This is a stock control approach that involves the backup strategy. In a two or three-bin system, products are placed in more than one container. This way retailers can use the backup containers when the primary containers are empty. Containers also represent the reorder point (ROP) and thus, allow retailers to refill the stock earlier.

The problem with this method is that a multi-chain business may not know how many items are in stock. Even if they receive a big order, they can only fulfill it according to the container size.

Fixed Order Quantity

This inventory control method is directly associated with the reorder point (ROP). Retailers only order the replenishment stock and only a specific amount of inventory can be ordered at one time. This allows businesses to avoid reorder mistakes and enable them to cut unnecessary expenses while preventing storage space issues.

Fixed Period Ordering

It is exactly as it sounds. In this approach, retailers reorder the products after a fixed time interval. The replenishment of specific items are linked with a specific date and the order quantity is always different. In simple words, inventory is restocked on a specific date or after a specific time. But the order quantity varies depending on the market demand or inventory needs.

Vendor-Managed Inventory (VMI)

In the vendor-managed inventory method, the inventory is often controlled by the vendors. It solely relies on the supply chain agreement that a retailer made with its vendor. A vendor representative keeps an eye on the inventory in this method. The person responsible reviews the stock and fills the inventory keeping in mind the space available.

Set Par Levels

This is an inventory control method in which stock is refilled when it drops the par levels. The tactic is also known as periodic automatic replenishment (PAR).

This is a suitable way to control inventory for multi-chain businesses who have inventory management software. All they have to do is determine the minimum quantity that they want to have in stock. Once the requirements are set for each product, the software will take care of the stock. This is a strategy that makes a business more flexible and efficient.

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Process of Inventory Control

Inventory control process involves a set of effective strategies and techniques. These are the methods which help retailers manage their stock accurately and measure the gaps. Multi-chain businesses often lose track of their inventory when it comes to restocking the products. They either forget to reorder or end up overstocking items.

This is an issue which can be resolved through an omnichannel inventory control system. The ideal way is to break down your stock into three major categories.

  • Safety stock
  • Replenishment
  • Excess and obsolete

This way you can easily know which items are to be reordered. You can also get notifications when an item hits the minimum level and is overstocked. Inventory control managers can then come up with a strategy to keep a supply and demand balance.

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7 Inventory Control Techniques

Inventory control techniques vary from business to business depending on the nature of business. However, retailers need effective strategies which they can practice to maintain a supply chain balance. Below are some effective inventory control techniques that you’ll find handy.

Implement a Management Improvement Methodology

This is a technique that can not only improve inventory control but can also boost your overall business performance. An effective methodology can help you evaluate your current processes. It can increase profitability by helping you adapt to changing business needs and streamlining the workflow. 

Optimize Purchasing Procedures

Optimization and automation are the keys for retailers in this day and age. This is where you can take advantage of omnichannel commerce and use data to your benefit. A good inventory management system can help you identify hot-selling items. You can use it to monitor customer demands and forecast the purchasing process in advance.

Manage Supplier Relationships

When it comes to multi-store retail business, a relationship with your vendors is crucial. You can negotiate the minimum order quantity with them, quickly restock items, and may even purchase products at lower costs. Furthermore, you can also persuade them to take back items that aren’t selling well. However, for this, you need to manage a good relationship with your suppliers.

Create Automated Reports

Data is the key to ensuring success for retail businesses. It helps in driving sustainability and gives retailers a competitive edge. So, you need an order management system that can generate automated reports for your stock. This is where an omnichannel inventory system proves to be useful. 

Do Risk Valuation

Conducting a risk assessment can save your retail business from an upcoming storm. This provides you an opportunity to determine your worst risks and you can take preventive measures accordingly. You will be able to prepare a strategy for issues like discontinued products, slow-moving items, inventory miscalculations, warehouse space shortage, cash shortfall, or unexpected sales spike.

Regularly Audit

An inventory control audit provides objective insights and ensures that your stock and sales are lined up. We recommend you do a physical check of your warehouse stock. You should develop a habit of auditing your inventory after every quarter. This will help you mitigate issues at early stages and you will be able to keep your inventory control in check.

Selective Inventory Control

This is a technique that allows retailers to choose products based on their value. Through selective inventory control, you can categorize the stock with respect to their consumption rate, pricing, procurement difficulty, and usage value. You can also do an ABC analysis to find the most profitable products and to boost your overall sales and revenue. 

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Inventory Control Best Practices

Each industry has its own specific inventory control best practices. However, there are some general tactics that any retail business can follow to strengthen its operations.

Barcoding Your Inventory

One of the best practices to control inventory efficiently is through barcoding. This is a process which allows you to tag products and give them unique identification numbers. Thus, you will be able to track products easily and can keep track of items present in your inventory. Barcode your items as soon as they enter the inventory and remove them from the system when the orders are confirmed.

Optimize Your Pick and Pack Process

By optimizing your pick and pack process, you can easily make your inventory control process more efficient. We recommend you place your hot-selling products near the packing station. Make sure there is no clutter and the staff packs items and double-checks the orders.

Conduct a Risk Assessment

An effective risk assessment can save your retail business from an upcoming storm. By determining potential risks, you can prepare preventive strategies for issues like discontinued products, slow-moving items, inventory miscalculations, warehouse space shortage, cash shortfall, or unexpected sales spikes.

Real-Time Inventory Tracking 

This is what separates an effective inventory from an ordinary one. If you cannot keep track of the stick in real-time you’ll end up disappointing your customers. You may fail to fill a big order because you won’t know whether the item is restocked or not. So, make sure your retail business has a real-time inventory tracking plan in place.

Regularly Audits

This goes without saying because you cannot improve the efficiency without conducting audits. However, it’s a tedious task that requires the right skill and time. But you can perform regular audits if you have an omnichannel inventory control system.

Use Cloud-Based Inventory Management System

Retail businesses have now moved to management software and are no longer using Excel inventory. But most software is either expensive or can only be used offline. Thus, they fail to offer a real-time view of the inventory. We recommend you to get a cloud-based inventory system if you want to effectively control your stock.

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XStak Helps You Streamline Your Inventory Control Process

XStak has a cloud-based Order & Inventory Management which is a distributed inventory and multichannel order management system. OE helps retailers automate their multi-chain businesses through real-time inventory synchronization of both offline and online channels.

XStak OMS enables you to manage and control your inventory in multiple locations. You can access real-time stock data, perform quick audits, get performance reports, and evaluate your hot-selling products.

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What is an example of Inventory Control?

Let’s say a grocery store chain is selling well but the demand for a few items are either too high or too low. Now the inventory control manager has to implement a strategy to maintain the supply chain balance. This is where an inventory control strategy is needed to manage the stock accordingly.

How do you measure inventory efficiency?

To measure inventory efficiency, you have to divide your net sales by the inventory. The number you’ll get will indicate your inventory turnover ratio. This will tell you how many times your inventory has been sold or turned over. You can also see how efficiently your business has used its inventory. 

What is the lead time in inventory control?

The lead time represents the time interval between placing an order and its accomplishment. In inventory control, it’s the time difference when an order is placed and received in your warehouse. The lead time varies from business to business and affects the delivery time.

How to calculate safety stock and reorder point? 

This can be done using a simple formula. All you need to do is multiply the lead time by the daily average usage. Then add this number to the amount of safety stock you keep and you’ll get the answer.

Manage inventory across multiple locations and optimize your stock levels with the XStak inventory control system. Experience the omnichannel experience by booking your free demo

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