Inventory Control: Your Guide to Basics and Best Practices

Inventory control (also called stock control) is the process of making sure you have the right amount of stock on hand to meet customer demand without overspending or running short. There are several inventory control methods businesses can use, but the best one for you depends on your industry, product type, and how fast you're growing.

Here's a scenario most product sellers know too well: one SKU is piling up in the warehouse while another just sold out, and customers are already asking where their orders are. Sound familiar? That tugofwar between having too much and too little stock is exactly what inventory control is designed to fix.

Inventory control is an operational process that includes daily activities like receiving raw materials and products, checking for discrepancies, and storing and moving inventory within your warehouse and out to customers.

Its core goal? Avoiding overstocking and stockouts, the two biggest cash drains in inventory management. When done well, inventory control ensures you have enough stock to meet your business needs while keeping costs low and staying ahead of changing market demand.

In this post, we'll explore what inventory control is, how it differs from inventory management, and the methods your company can use to optimize inventory control.

Key Takeaways:

1. Inventory control ensures customers receive products on time at the lowest cost to businesses.
2. A solid inventory control system ensures companies keep enough stock, maintain customer satisfaction, and stay on top of changing demand trends.
3. While inventory management holistically describes the inventory process, inventory control focuses more on daytoday inventory operations.
4. Businesses use different inventory control methods depending on their product and industry.

What Is Inventory Control?

Inventory control, sometimes called stock control, ensures that a company has the right amount of stock to meet demand. It involves monitoring the movement, location, quantities, and even the quality of goods across your business.

While inventory management looks at inventory more holistically (think procurement, distribution, and returns), inventory control zeros in on studying market demand and using those insights to make smart decisions about the stock you already have on hand.

Successful inventory control pulls data from purchases, reorders, shipping, warehousing, receiving, loss prevention, and turnover to give you a clear picture of what's happening with your stock at any given moment.

When creating an inventory control system, you should have one goal: maximize profit while incurring as little inventory cost as possible and prioritizing customer satisfaction. It's a tricky balance, and businesses too often save costs at the expense of retaining customers, or vice versa. Getting inventory control right is one of the most critical elements of scaling a business. Stick with us as we explain why good inventory control is pivotal for growing companies.

Why Is Inventory Control Important?

Inventory control reduces costs and improves service while managing working capital to maintain adequate and consistent cash flow. For most product-based businesses, inventory is one of the biggest capital expenses on the balance sheet. It eats up a large chunk of current assets and working capital. That's why effective inventory control matters so much: it means having the right product in the right place at the right time, and a solid strategy is essential to meeting customer demands.

The primary objective is to keep only the necessary units on hand without overspending or compromising customer satisfaction. Whether you're an online retailer, a wholesaler, or managing inventory throughout the supply chain, you'll run into unique circumstances that call for a tailored inventory control system. Later, we'll break down how different product sellers deploy different techniques depending on their industry and market share.

Inventory Control vs. Inventory Management

Inventory control falls within the larger concept of inventory management. While inventory management involves high-level oversight of the entire inventory lifecycle, inventory control is more targeted. It focuses on the stock you already have in your warehouse and the day-to-day activities that keep it accurate and accessible.

Both aim to improve your bottom line, but they approach it in different ways:

• Inventory management is the big picture. It covers procurement, supply chain management, distribution, returns, inventory accounting, forecasting, and strategic planning.
• Inventory control is the ground-level work. Think maintaining the right stock levels, receiving and sending orders, ensuring stock quality, avoiding waste or spoilage, and handling other day-to-day order management processes.

You might also hear the term inventory optimization tossed around. That's a related but distinct concept. It uses data analysis and demand forecasting to finetune stocking levels across the supply chain for maximum efficiency. Inventory control keeps things stable; optimization takes it a step further.

Benefits of Inventory Control

Implementing a structured inventory control system can support companies in a few ways. Here are some of the benefits of inventory control:

1. Ensures Enough Stock to Meet Business Needs

The primary purpose of an inventory control system is to ensure that all raw materials and finished goods are available for production or sale. But it doesn't stop there. Inventory control should also cover packing materials, MRO (maintenance, repair, and operations) supplies, and any other stock your business needs to run smoothly.

If you've ever tried to keep pace with all that handling, recording, and tracking manually, you know how quickly things can spiral. An inventory control system can spot spikes in sales, flag upcoming promotions, and alert you to the necessary inventory response so you're reacting in real time instead of playing catchup.

2. Keeps Inventory Costs Low

The different costs associated with inventory include:

• Labor
• Storage
• Ordering
• Supply chain costs

Every one of these costs either gets passed onto your customers or chips away at your margins. An inventory control system helps you spot unnecessary expenses and find savings along the supply chain, from acquisition all the way to delivery.

Here's the upside: when you lower your inventory costs, you free up capital for expansion, new product lines, or simply healthier profits. Inventory touches almost everything in your business, so getting control over it saves money at multiple touch-points.

3. Improves Customer Satisfaction

Exceeding customer expectations is one way to stand out from the competition. A detailed inventory system can be key, knowing what you have, where you have it, or how long it will take to get it.

An essential advantage of having realtime inventory control reports is that they provide businesses with instantly actionable data. Additionally, realtime inventory management allows you to analyze trends and pinpoint where you need improvements. Realtime reporting gives your business a competitive edge and improves sales by minimizing or eliminating stockouts.

4. Optimizes Product Sales Through Forecasting

Inventory control is vital in estimating future sales volume or evaluating what items to put on sale racks. Forecasting is essential for retail businesses and a huge part of optimizing product sales. Business managers can review historical purchasing data to make assumptions based on product performance when using an inventory control system.

The Inventory Control Process

Creating a successful inventory control system requires structure and communication across different teams. Follow the three steps below to lay the foundation for your inventory control system.

Step 1: Determine Minimum Inventory Needs

Strong communication is the key to smooth processes, and when it comes to inventory control, effective communication between the production, sales, and marketing teams is critical to success. Marketing departments have a pulse on demand, whether through customer interaction or data. Similarly, production teams have access to critical timelines and material supply. Collaboration between these departments ensures minimum and maximum inventory limits get met without overproducing or undersupplying.

Step 2: Find the Reorder Point

The reorder point (ROP) is a specific level at which you need to order stock so you do not run out of inventory. A big part of determining the ROP is keeping a pulse on raw materials, work-in-progress goods, and finished goods. A robust inventory control system forecasts the ROP for all the components you'll use in production and finished goods.

Step 3: Employ an Effective Inventory Management Strategy

There are various tried and true inventory control techniques that companies find success with, and you can select the one that best meets your needs. Whatever approach you choose, the strategies must help determine your minimum inventory needs and ROP.

Inventory Control Methods

Inventory control can be achieved in a variety of ways, from simple paper-based checklists all the way to fully automated software. At their core, inventory control methods are sets of protocols and processes for systematically tracking stock, evaluating the accuracy of your records against what's physically on hand, and making sure you're stocked right. Here are some of the most common methods to consider.

See also: inventory management techniques.

Periodic Inventory Control

The periodic inventory control method reconciles inventory periodically with merchandise recorded in the purchase account. In this method, the inventory account and cost of goods sold (COGS) update at the end of the accounting period, which is determined based on business needs.

The inventory account is adjusted to match closing stock, calculated using the first-in, first-out (FIFO) method or the last-in, first-out (LIFO) method.

Best for: Small businesses that hold smaller amounts of inventory

Perpetual Inventory Control

The perpetual inventory control method uses sophisticated equipment and software that tracks inventory in real time. Updates happen automatically whenever a product is received or sold. Unlike periodic inventory control, perpetual inventory has a builtin checks and balances system.

A perpetual inventory system makes sense for businesses with multiple product lines and high sales volumes.

Best for: Large companies that typically see high sales numbers

Just-in-time Inventory Control

The just-in-time inventory control method helps companies limit costs by only holding inventory when needed.

This method works well for companies that experience seasonal demand or small businesses looking to limit inventory costs as they're just starting to grow. It can be costly to store inventory for extended periods; the just in time method ensures companies don't see costs from holding inventory in-house.

Best for: Retailers that experience seasonal demand and small businesses trying to minimize inventory costs as much as possible

Economic Order Quantity (EOQ) Analysis

Companies use the EOQ formula to determine the optimal quantity of inventory that satisfies market demand and minimizes inventory costs as much as possible.

The EOQ formula assumes that demand will remain relatively constant over time, so companies in industries that see lots of demand fluctuation and seasonal changes can't use it.

Best for: Companies in industries that don't see demand fluctuation

ABC Analysis

ABC analysis is a process companies use to prioritize products and materials based on their worth. Using ABC analysis, companies make informed decisions about the inventory that's most valuable to have on hand.

In ABC analysis, the "A" represents the goods with the most value, the "B" represents goods with slightly less importance, and the "C" is goods with the least value. Companies consider goods with these categories in mind when making inventory control decisions.

Best for: Product sellers and manufacturers looking to segment products by revenue to increase profit margins

Inventory Control Challenges

Developing a sound inventory control strategy involves overcoming organizational challenges. Here are a few challenges you may face when implementing an inventory control strategy:

Lack of Visibility

If you move large amounts of stock, work with multiple suppliers, or have a more complex warehousing system, it can be difficult to see the entire inventory process.

Without proper visibility into stock movement, you can easily find yourself with too much, insufficient, or the wrong type of stock. As a result, it's important, first and foremost, to ensure you have visibility into all moving parts of your inventory process.

Supply and Demand Fluctuations

Inventory control only works if you understand how supply and demand works in your industry. As mentioned above, companies that experience seasonal supply and demand shifts will want to deploy a different inventory control method than those with a more regular supply schedule.

Understanding the nature of supply and demand will allow you to make an informed decision about the correct inventory control method, so you can build an internal system that makes the most sense for your business and industry.

Human Error

Inventory control helps reduce human error primarily through automation. By creating an inventory control system rooted in an automated inventory management system, you can mitigate mistakes by automating invoicing, purchasing, and stock count.

Additionally, the best inventory management software will alert you if there are any inaccuracies or discrepancies in your physical inventory count and financial records.

Overstocking

Overstocking increases holding costs or when an opportunity is missed for the sake of something else. In terms of inventory, overstocking one product reduces the capital available to purchase new products, meaning there's a loss of opportunity to profit from new products. On top of missed opportunities, there's a risk of being stuck with obsolete inventory, plus an increase in holding costs, including storage, possible theft, or damage.

Stockouts

Stockouts occur when you need more inventory to cater to the market demand. Like having too much inventory, not having enough also affects cash flow. But more importantly, insufficient stock directly affects the customer experience. Today's shoppers expect same-day and next-day delivery. When they don't, they're quick to try other vendors or to write poor customer reviews.

Inventory Control Best Practices

Your inventory control approach will look different depending on your industry and product type, but a few best practices are pretty universal. No matter which method you choose, keep these in mind:

Audit Inventory Records Regularly

You should check that your physical stock aligns with your inventory reports to ensure no discrepancies. If you're using inventory management software, perform a year-end inventory count to ensure your physical stock count aligns with the information in your software.

Audit high value items more regularly than others. You can also audit fast selling items through the process of spot checking, which involves checking items on a more regular basis than the rest of your inventory.

Establish a Solid Relationship with Suppliers

If you have a good relationship with your supplier, you can improve your inventory control system, as your supplier can help you solve problems that may occur during inventory management processes.

For instance, let's say you have a product that doesn't sell nearly as well as others, but you still need to stay stocked with it. If you have a good relationship with your supplier, you can negotiate a beneficial minimum order quantity so you can appease customers without taking a loss on obsolete inventory.

Leverage Automation

Automating your inventory control process is one of the best ways to stay on top of market trends, reduce human error, and keep stock levels right where they need to be.

In practice, automation can look like: Realtime stock syncing across all your sales channels and warehouses; Automatic reorder alerts when inventory hits your predetermined thresholds; Discrepancy flagging that catches mismatches between physical counts and system records.

Once you've nailed down the inventory control method that fits your business, an automated inventory management system lets you take a more handsoff approach so you can spend less time counting stock and more time growing your business.

What Are the Main Objectives of Inventory Control?

The main objective of inventory control is to maximize profits while keeping inventory costs as low as possible, all while making sure customers get the right products on time.

• Avoid stockouts: keep enough inventory on hand so you don't miss sales or disappoint customers.
• Prevent overstocking: avoid tying up cash in excess stock that's expensive to store or hard to move.
• Keep costs low: reduce ordering, storage, and carrying costs without compromising service.
• Stay ahead of demand: use inventory data to spot changes early and plan your next move.

When you balance these four goals well, your inventory stays lean, responsive, and ready to support growth.

The right inventory control method for you will depend on your business and industry, but you can supercharge any approach by pairing it with inventory management software built for your needs. Cin7's versatile software solutions help you sell more products to new customers at the lowest cost possible.

Get a demo to see what our products can do for you.

Frequently Asked Questions

What are the 4 types of inventory control?

The four most common inventory control methods are periodic (counting stock at set intervals), perpetual (tracking inventory in real time with software), just-in-time (ordering stock only as needed), and ABC analysis (grouping products by value or importance).

What does inventory control mean?

Inventory control is the process of making sure you have the right amount of stock on hand to meet customer demand without overspending or running short. It involves daily activities like receiving products, checking for discrepancies, and storing and moving inventory within your warehouse and out to customers.

What is basic inventory control?

Basic inventory control tracks stock levels while monitoring customer demand to ensure businesses have the products people want in the correct quantities. This helps companies avoid overstocking (which ties up cash) and stockouts (which lose sales and frustrate customers).

Is inventory control a hard skill?

Inventory control combines hard skills (understanding inventory control systems, managing distribution processes, and conducting analysis) with soft skills (communication between teams, problem solving with suppliers, and strategic planning). Both types of skills work together to maximize profits while keeping inventory costs low.