Inventory control consists of knowing the status of a company’s goods, including raw materials, semi-finished and finished products.
There are companies that only need to perform an occasional check of item types. Others, however, require much more extensive inventory management because they have production processes, high product turnover and customer returns (reverse logistics). Inventory control is an important factor here in achieving higher profitability.
This article explains what inventory control is, why it is particularly necessary for companies that manage an increasing number of item types, and how it should be implemented.
What is inventory control?
Inventory control encompasses various processes and methods for monitoring a company’s stock. When all of a company’s goods are accurately known, processes and operations can be better planned and organised. Stock Locator
Inventory control includes inventory management, which consists of recording the procurement and sale of products. A company should have a minimum stock level to be able to provide a service and must determine its reorder point, which is the stock level that, when reached, must be ordered for replenishment.
In this way, a balance is created between incoming and outgoing items in the warehouse so that their availability is known. Inventory control also takes into account demand fluctuations, lead time and business trends to define the quantity of products needed for optimal customer service.
A WMS optimises stock control and reduces the potential for errors
Why should stock control be carried out?
Inventory control is about two basic objectives: Minimising inventory costs and ensuring excellent customer service.
Maintaining optimal inventory levels and keeping a balance of stock in the warehouse is critical to business profitability, as out-of-stock situations can lead to delays and customer complaints.
On the other hand, overstocking is also undesirable as it creates additional costs and goods could become obsolete.
How is stock control carried out?
Inventory control is a process that can be done in three different ways:
Manually on paper. Operators are given a list of the product catalogue, walk through the warehouse, check the number of items available for each item type and then write down this number. The disadvantage of this method of working is that mistakes can be made, so it is only suitable for small businesses with little stock and turnover.
Using Excel. This programme can be used to create lists of items in stock. Unlike the paper version, Microsoft Excel has special templates for creating inventories and the data can even be entered directly from the barcode readers. However, since virtually all data entry is manual, the likelihood of errors is quite high.
With a warehouse management system. Performing stock control manually is tiring and the risk of error is very high. On the other hand, a WMS such as Easy WMS by Mecalux works paperless, speeds up stock control and reduces errors. This software controls all incoming and outgoing goods, ensuring complete and secure control over the processes that each item goes through.
How often should stock control be carried out?
Companies should set fixed intervals for stocktaking. This will depend on factors such as the number of products available, the size of the warehouse and the number of operators.
Inventory control can be done periodically (e.g. monthly, quarterly, half-yearly or annually). However, this involves a large number of staff for one or more days and is likely to disrupt the operation of the warehouse. Apart from the fact that this requires considerable effort, errors may occur as stock control is still done manually.
A cyclical inventory can also be carried out. In this case, certain types of items are counted more frequently than others, depending on their characteristics or turnover (according to ABC analysis). Unlike annual or biannual stocktaking, this ensures accurate knowledge of the types of items in storage, reducing the risk of out-of-stock situations.
The ideal option is to carry out a perpetual inventory. In other words, you have an inventory that is updated in real time, in which all stock movements, from receipts and issues to internal movements, are continuously recorded. This is only possible with a WMS, as this system automatically tracks the items that are received, stored and shipped. With a perpetual inventory, costs are reduced and errors and business interruptions are avoided.
Physical inventory vs. book inventory
Physical inventory should not be confused with book inventory. Physical inventory refers to the actual organisation of goods within the warehouse. Book inventory, on the other hand, refers to the monetary value of those goods.
The aim of a physical inventory is to ensure that the units registered in the system match the units actually on the shelves. If there are differences, this can be attributed to picking errors, theft, etc.
When checking book stock, an attempt is made to match the monetary value of the stock purchased with that of the stock shipped. This is problematic when the same type of item has been purchased at different prices, because once it has been placed on the shelves, no difference can be made between the types of items. This is where accounting methods such as FIFO (first in, first out, the value of the last product shipped is that of the oldest product), LIFO (last in, first out, the value of the product shipped is that of the newest product) or weighted average price come into play.
Optimal control of book inventory allows for comprehensive control of physical inventory. If it is not known which products are actually in the warehouse, it is impossible to assign an economic value to the company’s inventory.
In ABC analysis, items are classified according to the level of demand
All products under control
The goal of inventory control is to facilitate the processes in the warehouse. Good organisation of goods has a positive effect on all operations that take place in the facility.
By knowing exactly what items are available in the warehouse, the company’s effectiveness is much greater and the company’s image improves accordingly. Restocking, order preparation or dealing with changes in demand are easier to organise. In addition, the company has enough stock on hand to be able to supply its customers even when demand increases.
Inventory control also helps to make the best use of the warehouse’s resources. For example, items that are essential for service delivery take up limited space when stored.
Inventory control means there is sufficient stock to supply customers and assemble orders without delay
