5 Inventory Control Methods to Boost Your Business Efficiency

Inventory control is the process of managing the quantity, location, and condition of your stock items to meet customer demand and optimize profits. It involves various techniques and systems to monitor how goods move in and out of your warehouse. In this article, we will explore five popular inventory control methods that can help you improve your business efficiency and productivity.

KEY TAKEAWAYS

Inventory control is the process of managing the quantity, location, and condition of your stock items to meet customer demand and optimize profits.

Inventory control involves various techniques and systems to monitor how goods move in and out of your warehouse, such as ABC analysis, EOQ, JIT, batch tracking, and safety stock.

Inventory control can help you reduce inventory costs, optimize space utilization, improve product quality, increase customer satisfaction, and enhance business efficiency and productivity.

Inventory control can be challenging due to factors such as demand variability, supply chain disruptions, human errors, data inaccuracies, inventory shrinkage, and technological limitations.

Inventory control software can help you automate and streamline your inventory control processes and improve your inventory control performance.

ABC Analysis

ABC analysis is a method of categorizing your inventory items based on their value and usage. It divides your inventory into three classes: A, B, and C. Class A items are the most valuable and frequently used, accounting for 80% of your inventory value but only 20% of your inventory quantity. Class B items are moderately valuable and used, accounting for 15% of your inventory value and 30% of your inventory quantity. Class C items are the least valuable and used, accounting for 5% of your inventory value and 50% of your inventory quantity.

By applying ABC analysis, you can prioritize your inventory management efforts and allocate more resources to Class A items, such as conducting regular counts, implementing quality checks, securing storage locations, and minimizing stockouts. You can also apply different reorder points and safety stocks for each class, depending on their demand variability and lead time. ABC analysis can help you reduce inventory costs, optimize space utilization, and increase customer satisfaction.

Economic Order Quantity (EOQ)

EOQ is a formula that calculates the optimal order quantity that minimizes the total inventory costs, including ordering costs, holding costs, and shortage costs. Ordering costs are the expenses associated with placing and receiving orders, such as transportation, labor, and administration. Holding costs are the expenses associated with storing and maintaining inventory, such as rent, utilities, insurance, and depreciation. Shortage costs are the opportunity costs of losing sales or customers due to stockouts.

The EOQ formula is:

EOQ = √(2 x D x S / H)

Where:

D = Annual demand in units
S = Ordering cost per order
H = Holding cost per unit per year

By using EOQ, you can determine the optimal order frequency and quantity that balances the trade-off between ordering and holding costs. EOQ can help you lower your total inventory costs, avoid overstocking or understocking, and improve cash flow.

Just In Time (JIT)

JIT is a method of inventory control that aims to reduce inventory levels to the minimum necessary to meet customer demand. It involves synchronizing the production and delivery of goods with the demand signals from customers or downstream processes. It requires close coordination with suppliers, efficient production planning, flexible manufacturing systems, and reliable transportation networks.

By adopting JIT, you can eliminate excess inventory, reduce waste, save storage space, improve quality, and increase responsiveness to customer needs. However, JIT also exposes you to higher risks of supply chain disruptions, such as delays, shortages, or quality issues. Therefore, JIT requires careful monitoring of demand patterns, supplier performance, and contingency plans.

Batch Tracking

Batch tracking is a method of inventory control that tracks the movement and history of groups of items that share common characteristics or origins. It assigns a unique batch number or lot number to each batch of items that enter your warehouse. The batch number links to information such as the supplier’s name, production date,
expiration date, ingredients, specifications, quality tests, etc.

By using batch tracking, you can trace the source and destination of each batch of items in your inventory. This can help you comply with regulatory requirements, ensure product quality and safety standards, manage product recalls or returns efficiently, and prevent counterfeit or fraudulent products.

Safety Stock

Safety stock is a method of inventory control that adds a buffer amount of stock to your normal inventory level to protect against unexpected fluctuations in demand or supply. It acts as an insurance policy against stockouts or lost sales due to factors such as seasonal variations, demand spikes, supplier delays, quality issues, etc.

The formula for safety stock is:

Safety stock = (Maximum daily usage x Maximum lead time) – (Average daily usage x Average lead time)

Where:

Maximum daily usage = The highest amount of units sold per day
Maximum lead time = The longest time it takes to receive an order from a supplier
Average daily usage = The average amount of units sold per day
Average lead time = The average time it takes to receive an order from a supplier

By maintaining safety stock, you can increase your service level and customer satisfaction, avoid backorders or rush orders, and reduce the impact of supply chain uncertainties. However, you should also consider the carrying costs and opportunity costs of holding excess inventory.

TIP

A good tip for inventory control is to use the 80/20 rule or the Pareto principle, which states that 80% of your results come from 20% of your efforts. This means that you should focus on the most important or valuable items in your inventory and allocate more resources and attention to them.

Inventory Software for Small Businesses: A Global Demand Analysis

Inventory management software is a tool that helps businesses track and optimize their inventory processes, from ordering to delivery. Inventory software can help businesses reduce costs, improve customer service, and increase profitability. According to various sources, the global demand for inventory software for small businesses is growing steadily, driven by factors such as ecommerce expansion, supply chain complexity, and competitive pressure.

The Market Size and Growth Rate of Inventory Software for Small Businesses

According to a report by Research and Markets, the global inventory management software market size was valued at $2.72 billion in 2020 and is expected to grow at a compound annual growth rate (CAGR) of 9.4% from 2021 to 2028. The report segments the market by deployment type (cloud-based and on-premises), end-user (retail, manufacturing, healthcare, and others), and region (North America, Europe, Asia-Pacific, Latin America, and Middle East and Africa).

Another report by Grand View Research estimates the global inventory management software market size at $3.19 billion in 2020 and projects a CAGR of 8.8% from 2021 to 2028. The report also segments the market by deployment type, end-user, and region, but adds a segment by organization size (small and medium-sized enterprises (SMEs) and large enterprises).

Both reports indicate that the cloud-based segment dominates the market share, as cloud-based inventory software offers advantages such as scalability, accessibility, affordability, and security. The SME segment is also expected to grow faster than the large enterprise segment, as SMEs are increasingly adopting inventory software to improve their operational efficiency and competitiveness.

The Regional Demand for Inventory Software for Small Businesses

According to both reports, North America is the largest regional market for inventory software for small businesses, followed by Europe and Asia-Pacific. North America accounts for a significant share of the global ecommerce sales, which drives the demand for inventory software to manage online orders and deliveries. Moreover, North America has a large number of SMEs that use inventory software to streamline their inventory processes and reduce costs.

Europe is the second-largest regional market for inventory software for small businesses, as it also has a strong ecommerce presence and a large SME sector. Europe also has stringent regulations regarding product quality and safety, which require businesses to have accurate and reliable inventory data.

Asia-Pacific is the fastest-growing regional market for inventory software for small businesses, as it has a huge potential for ecommerce growth and SME development. Asia-Pacific has a large population of internet users and online shoppers, as well as a rising middle class with increasing disposable income. Furthermore, Asia-Pacific has a diverse and complex supply chain network, which creates challenges and opportunities for inventory management.

The Best Inventory Software for Small Businesses

There are many inventory software solutions available in the market, each with different features, prices, and benefits. Some of the best inventory software for small businesses are:

Lightspeed Retail: Best for retailers
Zoho Inventory: Best value
Katana: Best for manufacturers
Ordoro: Best for multichannel sellers
Cin7: Best overall

These inventory software solutions offer features such as automated purchase orders, barcode scanning, kitting and bundling, vendor management, ecommerce integration, reporting and analytics, and more. They also have different pricing plans that suit different budgets and needs.

Inventory software for small businesses is a valuable tool that can help businesses optimize their inventory processes, reduce costs, improve customer service, and increase profitability. The global demand for inventory software for small businesses is growing steadily, driven by factors such as ecommerce expansion, supply chain complexity, and competitive pressure. The market size and growth rate vary by deployment type, end-user, organization size, and region. There are many inventory software solutions available in the market that cater to different business needs and preferences.

FREQUENTLY QUESTIONS

Q: What is the difference between inventory control and inventory management?
A: Inventory control focuses on managing existing stock in the warehouse, while inventory management covers the entire process of procuring, storing, and selling goods across the supply chain.

Q: What are the benefits of inventory control?
A: Inventory control can help you reduce inventory costs, optimize space utilization, improve product quality, increase customer satisfaction, and enhance business efficiency and productivity.

Q: What are the challenges of inventory control?
A: Inventory control can be challenging due to factors such as demand variability, supply chain disruptions, human errors, data inaccuracies, inventory shrinkage, and technological limitations.

Q: How can inventory control software help you?
A: Inventory control software can help you automate and streamline your inventory control processes, such as tracking inventory levels and locations, updating inventory records, generating reports and alerts, integrating with other systems, and analyzing data and trends.

Q: How can you improve your inventory control performance?
A: You can improve your inventory control performance by implementing best practices such as conducting regular audits and counts, setting optimal reorder points and safety stocks, applying appropriate inventory control methods, using barcode scanners or RFID tags, and monitoring key performance indicators (KPIs).

References:

https://www.macmillandictionary.com/dictionary/british/stock-control

https://books.google.com/books?id=NOOmR2D88Q0C

https://books.google.com/books?id=v9YjCgAAQBAJ&pg=PA7

https://www.businessmanagementideas.com/business-management/methods-and-techniques-of-inventory-control-business-management/542

https://www.clear.in/s/inventory-control