Inventory control: laying paths for a bright business future

What is inventory control?

Inventory control is the process of managing a business’s inventory levels, allowing companies to optimize inventory management and assess account balances and financial reports.   

The terms inventory control and inventory management are often used interchangeably. In fact, they are separate entities — think of the former as a part of the broader discipline of inventory management. The primary objectives of control over inventory are to know where everything is and to make sure it always gets to the right place.   

Inventory management deals with inventory costing, buying policies, and selling prices.  

A good analogy of stock control is the human heart.   

At its essence, the heart’s job is to pump blood. But not only does it pump blood to every organ in the body but also dynamically maintains the correct volumes. If you exert your body more than usual, the heart must compensate and begin pumping blood faster — everything runs in balance.   

The more you use it, the stronger it gets, and disasters occur if things aren’t regulated properly. 

Inventory control is similar and focuses on: 

• Keeping track of stock — what you already have and know how much you have and where it is  
• Stock logistics — organizing the stock in your warehouse or storeroom so transport time is optimized, in turn reducing lead time  
• Correct storage of goods — for example, if wood is not stored at the correct temperature or if the humidity is off, then this leads to it becoming obsolete faster than you can use it. This is also a concern of health and safety — is everything stored and transported in accordance with best practices  

In contrast, inventory management is concerned with: 

• Stocking the right amount of inventory to minimize holding costs and associated waste  
• Making sure you get the best deals for materials — For example, managing economic order quantity (EOQ). This is reflected in your overall cost of goods sold (COGS)  
• Inventory valuation — Choosing the right costing like LIFO, FIFO, or MAC (also part of COGS). The inventory management technique can change the costs you report on your financial statement, like how much you spend on raw materials (part of manufacturing cost). 

In addition, there is one more term that should not be confused with either of the above: 

Operations management

This is the catch-all term for ultimate business efficiency. Sounds intimidating, but your inventory control and management both funnel into your operations management. 

In short, operations management involves:  

• Inventory management 
• Quality control  
• Production scheduling and planning  

Think of operations management as a big circle that encapsulates your whole production process — the day-to-day of your business. 

Within that is a smaller circle — inventory management. And within that circle, there’s another smaller circle called inventory control. This specialized area is central to your operations and has repercussions across your whole business — so stay sharp. 

So that’s the very complex definition of inventory control. Now, why exactly is inventory control important?  

Inventory control techniques

These are the best inventory control techniques that every manufacturing business should implement. 

Think of it as a basic checklist. It’s all about the fundamentals. This is the bread and butter of what you need to be doing. 

These are always worth going over as these are your best money and time-savers.  

1. Organize all your products logically

The best way to do this is to generate an SKU for each of your product variations. This lets you categorize your stock so you know where to put everything without thinking.  

2. Set your safety stock

This is the extra stock you keep around in case there’s a temporary supply chain breakdown or bottleneck. It lets your workshop keep going when you have a supply-chain issue, so it’s not such a big deal. The amount of safety stock you need may not be as much as you think. Apply a safety stock formula to find an optimum level.  

3. Set reorder points

These numerical thresholds tell you when you need to order more of something.   

The different stock items you keep will need different reorder points because you go through them at different rates. Lower reorder points lower your stock investment but increases the risk of an out-of-stock situation. So, incorrectly setting a reorder point may interrupt your production flow. You have the reverse problem if it is set too high. Finding the right cloud inventory software can help you stay on track. 

4. Cut your dead stock

We’ve all done it — held onto something for too long because you never know when you might need it.   

But there are some things that all the proverbial rainy days in the world will never shift. And guess what? All those grand pianos sitting in the back of your warehouse aren’t exactly “harmless.” Ever heard of carrying costs? This useless stock is like an unwanted guest that won’t leave. It’s time you evicted it and freed yourself of the stock that’s weighing you down. 

5. Scale up and go omnichannel

So, what to do now everything’s working like a well-oiled machine? Have a break? Well, you’ve earned it, but remember, you can’t put your feet up forever. And who would want to? This is just the beginning. Your manufacturing business can get even more awesome. The beauty of an effective inventory control system is that when done correctly, they scale up without you having to change your inventory plan again.  

So, when you’ve caught the business bug and want to keep riding the wave of your additional success, you can increase your sales by opening up new sales channels.  

This is where things get fun.  

How to control your inventory

Here are nine rockstar-level inventory control techniques:   

1. Track supply and demand in real time — use perpetual inventory and track your inventory at all times. This lets you fulfill one of the main goals of inventory control – to know where your stock is 24/7   
2. Establish stock control policies — This includes maximum and minimum inventory levels, reorder points, backorder allowance, and so on   
3. Have an emergency plan — make sure you know it backward, and your staff are well drilled to cope with all eventualities   
4. Prepare an inventory budget — including carrying costs and expected inventory turnover ratio. Stick to it, don’t go over it by practicing make-to-order, etc   
5. Split your inventory up — don’t think of your stock as a single entity. Figure out what your fast-moving stock is. It could be that 20% of your SKUs contribute to 80% of your revenue. For the rest, does its infrequent revenue justify the increased carrying costs? Inventory control models assume that demand for an item is not dependent on demand for other items in your stock. Concentrate on your high-turnover stock and reduce your low-turnover stock   
6. Resist temptation — things like supplier discounts – can cost you more money in the long run because you need to find a place to store the extra stuff. The extra minutes it takes your staff to locate materials adds up to hours each week. Of course, you are paying for these hours of zero-return   
7. Barcoding — This is fairly easy and cost-effective to set up. It integrates with your point of sale system (POS) to instantly track what’s going in and out of your factory    
8. Account for non-sale stock adjustments — Adjustments could be returns that will happen at some point. Another way could be gifts, like charitable donations. You need to adjust your stock by putting in a zero-value sale in your inventory control system. This will update it to the correct level   
9. Implement cloud-based inventory management software — You can keep control of inventory levels from anywhere