With the onset of various practices aimed to increase the gross output from a company, the management, and control of everything related with the inventory has taken the spotlight and paved the way for new techniques and practices to achieve it.
Inventory control is, therefore, an important aspect of maintaining a successful industry.
In this article, we’ll discuss what is inventory control, the difference between inventory control and inventory management, techniques and some examples of good inventory control.
So, What Is Inventory Control?
Inventory control is also known as 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 is taken care of 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 have adopted the prime use of inventory control to make differences to their profit shares positively.
Let us delve into the areas where inventory control is mainly adopted and followed to reap more profits.
The availability of raw materials is one of the prime factors that affect the working of a company. Only if there are enough raw materials, do a company be able to produce whatever goods they are willing to produce and only then processes will be carried out.
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 and thus to 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.
Inventory control thus highlights in the optimum storage capacity and the balancing of finished goods within the company and the backorders.
Another way in which the inventory cost can be eliminated is through the use of just-in-time production where the production is carried based upon the orders placed by the customers.
Another area where the inventory control has its power and influence on is the manufacturing or working area where the products that are being processed contribute to the inventory. 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 sizes of the job to help in internal logistics and storage.
Another factor that directly deals with the inventory control is the setting of reorder point. This point is the mark where the company or industry decides to reorder the inventory for production purpose. 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, and sometimes the companies and industries outsource certain aspects of production to transfer the burden of inventory control over to them.
Difference Between Inventory Control And Inventory Management
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.
Let us first learn what inventory management is all about and then delve into the definitions and its differences with the inventory control.
Inventory management 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 quantity of inventory 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 inventory. 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 in a safe manner lies on the shoulders of the department dealing with the inventory control. Keeping all the inventories and stocks in an organized and safe manner with the best quality control measures must be ensured by the inventory control section.
Techniques Of Inventory Control
Different companies adopt various methods and strategies to deal with their problems related to inventory control to increase the maximize profits.
Let us go through some of the common practices and techniques of investment control.
1) Fixing Of Stocking And Inventory Policies
The industry officials and company management must carefully assess the capacities of each its warehouses and come up with the range of 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 the 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 is done well before the inventory is procured and gives an insight into the performance and management of inventory in the coming year.
The budget costs include the cost of the materials, the operating costs associated with the warehouse, transportation and logistics 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 and its various aspects that deal with constant tracking of its contents and constituents which include the quality and value of its goods.
Inventory optimization is carried out by adopting the practices of Enterprise Resource Planning (ERP) to come up with the right allocation of resources and by using various warehouse management systems to carry out hassle free and easy management and control of the inventory.
Having a system of inventory management software that supervises the working and maintenance of an inventory can increase the output from such establishments.
4) A Turnover Ratio Of The Inventory
The turnover ratio refers to how quickly the contents of the inventory are used up by the company or industry. The higher value of turnover ratio indicates that the contents of the warehouses are being used up at a high rate which indicates higher sales volume and in turn lead to more profit generation for the company.
With the decrease in the shelf life of the inventory, the maintenance is lowered for goods that have a short lifespan. In industry, this turnover ratio will fluctuate according to the demands and market, and hence a close watch must be kept on such values. The turnover ratio also helps in fixing the reorder point of an inventory.
5) Changes In Purchasing Procedures
Certain practices related to the purchasing of contents for the inventory must be adopted to deal with the inventory control. When certain products do not get used up for more than a fixed period must be sold and liquidated and space must be utilized for better purposes than hoarding it for a long time.
The patterns of various items within the inventory should thus be taken into consideration before making the purchases.
6) Warehouse Design Management
The products must be categorized based on their needs and movement and hence arrange accordingly. A product that is very fast moving must be situated closest to the stacking port, and the obsolete stocks must be placed farther from the docking station. Thus the entire area and placement of each good must be done in an optimized manner.
Example Of Good Inventory Control
Various department stores in the United States such as Kohl’s and Macy’s have reported an increase in their sales and margins. They achieved this by adopting inventory control by shunning their inventories.
The fourth straight quarter sales performance increase was witnessed at both the Kohls and Macys’ according to the report submitted by Moody’s.
Kohl’s 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 any successful business. As the business grows, even a small percentage of inventory loss can substantially make dents in profit figures.
Business owners should systemise the process and use a good inventory management software. One of such softwares, ProfitBooks can help in streamlining purchase order management, sales orders and overall inventory movement.Try ProfitBooks For Free Today