What is Inventory Control?

What is Inventory Control?


By definition, inventory control refers to the process that seeks to maximize the efficiency of an organization’s use of inventory. Inventory control aims to find the major pain points where a company can improve in terms of reducing waste, saving warehouse space without its’ profits.

By virtue, the goal of inventory control to generate maximum profit with the least amount of inventory without affecting customer satisfaction levels. An Inventory tracking software helps in streamlining stockroom, supply chain, and warehouse operations and it provides visibility into inventory levels so that you know exactly what is coming in, going out and how much more you need.

Inventory control deals with the most valuable asset of the organization, i.e., the inventory. It is one of the foremost concerns of any type of business that holds inventory regardless of the scale.


The Purpose of Inventory Control

Purpose of Inventory Control

Inventory control serves an important purpose in the grand scheme of things, that is, supply chain management.


Aligning demand supply

The main purpose of inventory control is the efficient movement of goods, finished or unfinished, and aligning them with the organization’s production demands and strategic goals.

So basically, when a company manages inventory, it is trying to maintain a balance between meeting customer demand and minimizing costs.


Reducing inventory costs

Inventory can be quite expensive to store. Products sitting in the warehouse use up space, equipment, utilities and manual effort. Inventory stored at the optimum amount requires fewer expenses behind them. Additionally, companies incur huge losses when they have to dispose of inventory that has expired or which does not sell anymore. The money invested in that inventory goes down the train.


Preventing stockouts

Companies also run the risk of running out of inventory if stock levels are too low. Too many out-of-stock situations can turn customers away from your brand. Thus, ensuring a business keeps enough to fulfill near-term demand is another priority in inventory control.


Monitoring Sales Performance

Another part of inventory control is monitoring the sales of different products to identify fast and slow-selling goods. Inventory control software programs allow companies to monitor the sales performance of certain goods at different price points.


Importance of Inventory Control

Inventory control is important for the following reasons-

  • Inventory control protects the organization from fluctuations in demand for its products
  • It promotes better customer relationship
  • Maintains a smooth flow of raw materials and aids in continuous production
  • It helps to keep the right level of stock and reduces the risk of loss
  • Judicious use of working capital by avoiding over-stocking
  • Reduces inventory shrinkage due to theft or spoilage

Differences between Inventory Control and Inventory Management

There is a great misconception about inventory control and inventory management being one and the same thing. However, the two are entirely different concepts.

Inventory Control Inventory Management
  • Inventory control is that part of inventory management focusing on minimizing cost of inventory while increasing efficiency and ensuring timely delivery.
  • It facilitates inventory management.
  • Inventory control is concerned about inventory that is present in the warehouse.
  • It regulates the flow of items in and out of the warehouse and maintains storage of inventory.
  • With the help of inventory control, ensure optimum stock levels, calculate reorder points accurately and prevent overstocking.
  • Inventory Management deals with the maintenance of inventory, replenishment, and stock quantity.
  • Inventory management deals with forecasting and replenishing inventory.
  • It determines the amount, time, and appropriate supplier for each product.
  • This ensures sellers have the right quantity in the right place at the right time.



Benefits of Inventory Control

  1. Better Cash Flow: Inventory control and planning allows organizations to manage their cash flow. Often firms fail to acquire the required amount of inventory due to unavailability of cash. By having better control of their inventory, they know exactly how much inventory they need and when they need it. This can free up cash for investing in other business.
  2. Business Intelligence: An inventory control software enables a business to gain insight into how well their products are performing. They can identify the fast-selling and slow-selling products and adjust their inventory levels accordingly.
  3. Maximize Profits: With greater inventory control, organizations can make better business decisions and increase profits. Since they will know which are the best-selling products, they will optimize stock levels accordingly. There will be less wastage of products and warehouse space.
  4. Limits Employee Mishandling: Inventory planning and control limit the possibility of inventory shrinkage, in the form of theft, spoilage or obsolete inventory. Without stock control software, the business will be in the dark concerning the status of the inventory, ultimately reducing the profitability of the business. By curbing the chances of a mismanaged inventory, the company can significantly reduce ‘hidden’ costs.
  5. Reduce Labor Costs: Improved inventory planning and control techniques allow businesses to reduce labor costs associated with inventory. These include the time while manually taking stock count and shifting the inventory within the warehouse. Using an inventory tracking system automates manual tasks, reduces errors and saves time.

Types of Inventory and Inventory Control

There are different types of inventory in the supply chain-

  • Raw Materials- inventory control for raw materials could be done with the just-in-time method, where inventory is reordered only when the stock for the next step in the production process is about to get exhausted.
  • Finished Products- finished products can be controlled according to customer demand. When the business has enough stock to meet customer demands, then inventory required to manufacture more should not be reordered or the remaining should be used up.
  • Work in Progress- Work in progress is that inventory which is in the process of production. Inventory for these items can be controlled by ensuring the just the right amount of raw materials for the manufacturing process is available and wastage can be avoided.
  • Maintenance, Repair, and Overhaul- these are additional, rather miscellaneous inventory that incurs on top of inventory already stored. They can be controlled when warehouse conditions are favorable so as to reduce their costs.
  • Safety Stock or Buffer inventory- safety stock is extra inventory that is kept to avoid stockouts in case of a sudden rise in demand. Safety stocks can be kept at a minimum when inventory for raw materials and finished products are managed efficiently.

Inventory Control Systems

There are 2 main types of inventory systems-

  1. Perpetual Inventory System- perpetual inventory control system updates inventory ‘perpetually’ or continuously every time inventory moves in and out of the warehouse. The perpetual inventory system uses inventory tracking system to maintain real-time data about inventory to ensure accuracy. It even records returns and exchanges.
  2. Periodic Inventory System-  periodic inventory control system, as the name suggests, updates inventory periodically. In a periodic inventory system, inventory is counted only at the beginning and end of the accounting period. The periodic inventory system does not use any kind of software. In perpetual inventory system vs periodic inventory system, the latter is more prone to inaccuracy in inventory count as there is no record of inventory shrinkage throughout the duration of the accounting period.

Inventory Control Methods

ABC Analysis in this method, the inventory is divided into different categories according to their performance. Then the degree of control for each category is decided.

Economic Order Quantity(EOQ)- the primary purpose of EOQ is to determine the amount of stock that needs to be ordered at a point of time so that the total order and carrying costs are kept at a minimum.

Reorder Point- the reorder point is that point in the inventory level where fresh stock should be ordered in order to avoid stockout situation.

FIFO- this is a simple yet important principle for businesses dealing with perishable items. First-in-first-out basically denotes that the oldest inventory(first-in) be sold first(first-out), so that products are sold before their expiration dates.

Why Businesses Need Inventory Control Software

Keeping tight control over stock so that you are holding the least but the optimum amount of inventory makes organization easier, decreases carrying costs and increases cash flow, and saves warehouse space. When it comes to inventory control, accuracy is the key which is possible with the use of inventory control software. An inventory control system gives real-time updates about the status of inventory so that businesses know exactly how much or how little inventory they need.