Understanding Inventory Control: Definition and Advantages
By Indeed Editorial Team
Published July 27, 2021
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
When working at a business that sells products to customers, being able to manage inventory is an essential aspect of operations. Controlling the inventory levels in a warehouse can help you maximize profits and fulfill customer orders in a timely manner. Learning about the concept of inventory control and its impact on business is a useful tool for anyone interested in working with business operations and logistics. In this article, we review the basics of inventory control, including a comprehensive definition and its importance in business.
What is inventory control?
Inventory control is the act of managing the number of products in stock at any time and supervising the flow of products through a warehouse to optimize business operations. The process of inventory control involves tracking the type and quantity of all items in stock, delivery dates, incoming shipments and outgoing orders. Effective inventory control emphasizes having the ideal number of each item to fulfill customer orders, while minimizing the amount of inventory waiting in the warehouse. This typically involves stocking large amounts of popular items and small amounts of products with fewer sales.
Importance of inventory control
Inventory control is important because it provides you with the tools to understand your current resources and ensure you manage them strategically. The actions involved with inventory control support both short-term and long-term business development. By using inventory control methods, you can maximize your profits while limiting the amount of space you need to complete business operations. Business leaders rely on inventory control to guide decisions about what products to promote, when to phase out old versions of goods and how to preserve materials.
Inventory control vs. inventory management
Inventory control and inventory management are similar concepts in supply logistics because they both directly relate to how businesses store products. Inventory control specifically relates to how you manage stock in a warehouse and the policies you implement to order, organize and distribute products. In comparison, inventory management covers the entire process of supervising the supply chain, from ordering manufacturing materials to delivering finished products to consumers.
When working with inventory management, you consider issues like what kind of stock to purchase, what size warehouse to rent and how to ship inventory to customers. Inventory control activities include more specific tasks like:
Counting the number of items in stock
Deciding how to allocate space within a warehouse
Determining how much stock to purchase
Integrating warehouse stock with an online purchasing system
Tracking how long an item is in the warehouse
Discarding outdated products
Read more: What Is Inventory Management?
Advantages of inventory control
Here are some of the primary advantages of using inventory control methods:
Moving more product
When you use inventory control to optimize product levels, you can often sell more products. This is because implementing inventory control techniques typically keeps high-selling products in stock at all times, allowing consumers to buy the items they want whenever they want to make a purchase. Good inventory control ideally prevents popular items from ever being out of stock, capturing as many sales as possible. You can also use inventory control techniques like product bundles to upsell customers and convince them to purchase multiple related items at a discount to drive sales.
Related: How To Track Inventory
Saving warehousing costs
Strategic inventory control allows you to use your warehouse space efficiently, which can ultimately save money on storage. Warehouse space can be expensive, so knowing the minimum number of products to hold while still meeting customer expectations can be extremely helpful when deciding how much space you need to rent or build. Understanding how to organize your stock through inventory control is a great way to fit the highest number of products into your warehouse and effectively use existing space.
If you work with perishable items, inventory control is critical for reducing product waste. Knowing how many items you have in your warehouse and limiting the amount of stock you have in storage automatically reduces the number of products you have to throw away if they don't sell. This also applies to situations like packaging updates or new versions of products.
For example, if you release new packaging for a product and you have excess stock, you may have to throw away all of the products with old packaging. By using inventory control methods, you can limit the number of old products that you need to discard, ultimately saving money and resources.
Related: What Is Inventory Turnover?
Increasing internal communication
Inventory control improves communication within a business about the availability of products and the status of customer orders. When you have an accurate record of how many items of each type exist in the warehouse, you can clearly communicate with sales representatives, delivery people, other staff and customers about product availability. Good inventory control simplifies discussions about when to place new product orders, which products to prioritize and how to sell existing inventory in the warehouse.
An important aspect of inventory management is understanding where to find all of the items currently in stock. When you have a good inventory control system in place, you can efficiently locate, pick, package and ship orders. The organization system involved with inventory control also simplifies the process of distributing new shipments onto the warehouse shelves. This ultimately makes the entire supply chain more efficient, saving time and resources for warehouse staff.
Applying inventory control strategies creates positive customer relationships by meeting their expectations for accessing new products. Good inventory control aligns real inventory with online ordering systems so when customers place an item in their cart, that item is actually available in the warehouse. This reduces wait times and prevents situations where the business has to cancel orders due to a lack of inventory.
Raising quality standards
Having an inventory control system in place can actually improve the quality of products that consumers receive. This is because inventory control limits the time that goods spend sitting on the shelves, which reduces the chance of accidental breakage or age-related damage. It also ensures that all customers receive the most recent, up-to-date versions of the products they order.
Improving financial awareness
Using inventory control techniques can help you understand the cash value of the stock in your warehouse, which improves your awareness of company finances. Understanding the flow of inventory in your warehouse can also provide you with more knowledge about what products sell, how much you spend on inventory waste and the costs associated with storing products in between sales.
Disadvantages of inventory control
Using inventory control strategies may come with a few challenges. Here are three potential disadvantages of inventory control to consider and techniques for addressing them:
Developing an inventory control system can be expensive, depending on its complexity. Some inventory managers invest in expensive stock control software and barcode equipment to track goods across multiple warehouses, while others use simple spreadsheets. Limit costs by starting with a paper system and making upgrades as the business expands to accommodate larger shipments.
Tracking and organizing inventory does involve time and energy from staff. This is usually more of a challenge at smaller companies with limited labor resources and fewer members of warehouse staff. Save time by implementing an organization system and training every staff member to follow it from the beginning. This limits the amount of time you and other warehouse staff need to spend reorganizing and counting inventory.
One of the major challenges of inventory control is that stock levels fluctuate constantly as customers order items and inventory managers discard old products. Tracking these changes can be a complicate process, which may leave room for occasional errors. Carefully counting inventory, reviewing numbers and auditing inventory control methods are all useful techniques for managing the changes in inventory control.
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