With the onset of various practices aimed to increase the gross output from a company, the management, and control of everything related to the inventory are in the spotlight. Thus, paving the way for new techniques and practices to achieve it.
Inventory control is, therefore, an important aspect of maintaining a successful supply chain for the industry.
In this article, we’ll discuss what is inventory control and the difference between inventory control and inventory management. We will also see techniques and some examples of good inventory control.
Even though there is already a misconception regarding the two ideas of inventory control and inventory management being similar, it is entirely different aspects related to the inventory.
Let us now look into these terms and understand what makes them different from each other.
Table of contents:
- So, What Is Inventory Control?
- Inventory Management
- Inventory Control Techniques
- Example Of Good Inventory Control
- The Bottom Line
So, What Is Inventory Control?
Inventory control is another name for stock control, and the name says it all. It is the practice of generating maximum revenue of the company’s inventory by regulating it and adopting various practices.
The sole aim can be to increase the profits with the least amount of investment in the inventory. This fact stands firm without compromising customer satisfaction.
Inventory control also includes being accounted for all the goods and where they are at a particular moment. Retailers and distributors adopt the prime use of inventory control to make difference to their profit shares positively.
Areas of influence of inventory control
Let us delve into the areas where inventory control is mainly adopted and followed to reap more profits.
With the lack of raw materials, it will be difficult for the industries and may even lead to the stoppage of production. But if an industrialist decides to keep a huge amount of raw materials in its inventory, it would have to bear the inordinate cost that comes with maintaining it.
Hence the ideal way to tackle this problem will be to order quantities in small amounts on a frequent basis to reduce the inventory costs. Thus it shall ensure the steady supply of raw materials at the same time.
Just like the instance, we discussed earlier, the availability of finished goods also has a role in inventory control.
The cost of maintaining the finished goods within the company to be able to charge a high amount to deliver it right to the customers may sometimes increase the cost of inventory and the pricing premium associated with the product may not have any value.
primary controls within the supply chain
Inventory control thus highlights the optimum storage capacity and the balancing of finished goods within the company and the backorders.
The use of just-in-time production can eliminate inventory costs within the supply chain management. The production is carried based upon the customer orders.
Another area where the inventory control system has its power and influence is the manufacturing or working area where the products are being processed. To reduce inventory investment, one must reduce the inventory associated with the production process. Reducing the inventory travel time and reducing the workspace has a very good effect in this case.
Other steps would be to reduce the size of the job to help in internal logistics and storage.
Another factor that directly deals with inventory control is the setting of reorder point of inventory level.
This point is the mark where the company or industry decides to reorder the inventory for production purposes. The problem with the setting of reorder point is that too high a value can increase the chances of rising inventory investment and setting a small value can sometimes lead to stock out and disruption in production processes.
All these instances give us insight into the importance of inventory control systems, and sometimes the companies and industries outsource certain aspects of production to transfer the burden of inventory control over to them.
Inventory Management
Let us now learn what inventory management system is all about and then delve into the definitions and their differences with inventory control.
An inventory management system refers to the actions that deal with the management and maintenance of inventory goods. Their aim revolves around ensuring the products to be present in the right quantity whenever required and doesn’t directly affect the profits.
Therefore Inventory management can be summed up as having the right stock level and paying for these inventories according to the order quantity. It also includes knowing about the reorder point and ensuring the presence of inventory at the right place in the desired quantity.
Inventory control, on the other hand, focuses mostly on the inventory that is present in the stocked items. It bothers about the various items within its possession and how much of it is present with them. Inventory control is also responsible for the knowledge about where a particular item is placed and everything about the warehouse designs and its storage.
Therefore, the burden of taking care of the inventory reports in a safe manner lies on the shoulders of the department dealing with inventory control. Keeping all the inventory forecasting and stocktaking in an organized and safe manner with the best quality control measures must be ensured by the inventory control section.
Inventory Control Techniques
Different companies adopt various inventory solutions to deal with their problems to increase the maximize profits.
Let us go through some of the common practices and techniques of inventory solutions.
1) Fixing Of Stocking And Inventory Policies
The industry officials and company management must carefully assess the capacities of each of the multiple warehouses. They must come up with the stock level of supplies that can be accommodated in its inventory and limits must be specified. This procedure also includes the setting of the right amount of reorder points and values and the amount of safety stock.
2) Budget Preparation For The Inventory
One of the important steps related to inventory control is coming up with the right inventory budgets. Many companies have annual inventory budgets to address the financial needs associated with the inventory. This practice gives an insight into the performance and management of inventory stock in the coming year. To be well aware of, the preparation is made in advance.
The budget costs include the cost of the materials, the operating costs associated with the warehouse, transportation and carrying cost, cost of redistribution, fixed overhead costs, and other maintenance and safety-related costs.
3) Formation Of An Inventory System
Various systems deal with the management and control of inventory. They also deal with constant inventory tracking and constituents which include the quality and value of its inventory items.
Inventory optimization follows the practices of Enterprise Resource Planning (ERP) to come up with the right allocation of resources and maintaining the right amount of safety stocks. From using various warehouse management systems to carry out process improvement and easy management to control of the inventory.
An inventory management software that supervises the working and maintenance of an inventory will increase the output from such establishments.
4) A Turnover Ratio Of The Inventory
The turnover ratio refers to how quickly the company or industry uses up the contents of the inventory. The higher value of inventory turnover ratio indicates that the use of contents of the warehouses at a high rate. It indicates higher sales volume and in turn, leads to more profit generation for the company.
The decrease in the shelf life of the physical inventory leads to low maintenance of goods of a short lifespan. In industry, this turnover ratio will fluctuate according to the demands and market. Hence, a close watch must be kept on such values. The turnover ratio also helps in fixing the reorder level of an inventory.
5) Changes In Purchasing Procedures
Organizations must adopt certain practices of the purchasing of contents for the inventory to deal with the inventory control. When certain products do not exhaust for more than a fixed period, the organization must sell and liquidate. They must utilize space for better purposes than hoarding it for a long time.
You must consider the patterns of various inventory items before making the purchases.
6) Warehouse Design Management
Categorization of products must be on the basis of their needs and movement and hence arrange accordingly. The position of a product that is very fast-moving must be closest to the stacking port. Following which, the obsolete stocks must be farther from the docking station. Thus the entire area and placement of each good must be in an optimum manner.
Example Of Good Inventory Control
Various department stores in the United States reported an increase in their sales and margins, for e.g Kohls and Macys’. They achieved this by adopting inventory control by shunning their inventories.
The fourth straight quarter sales performance increase at both Kohls and Macy’s finds mention in the report by Moody’s.
Kohl’s entire inventory had fallen more than 6% each quarter since Q4 2017. At Macy’s, inventories have fallen by more than 4% during four of the past five quarters.
The Bottom Line
Understanding inventory control and taking the right steps to implement it is key to the supply chain of a successful business. As the business grows, even a small percentage of inventory loss can substantially make dents in profit figures.
Business owners should systematize the process and use good inventory management software. One such software, ProfitBooks can help in streamlining purchase order management, sales orders, and overall supply chain.
