How to Improve Inventory Control: A Detailed Guide

Inventory control isn’t a glamorous topic. But it’s the silent engine powering countless successful companies.

If you don’t have a handle on your warehouse’s inventory control, your business may stumble. Unfortunately, inventory control isn’t easy to fix. It requires a delicate balance between having enough stock to meet demand without drowning in unsold units.

OK, but what exactly is inventory control?

First, inventory control differs from inventory management. Inventory control, in its simplest form, focuses only on physical inventory. It’s the process of managing the flow of goods through a business.

Therefore, a store inventory control process would include tasks like purchasing, receiving, and storing products, and successful inventory control would tell you exactly how much of an item you have on hand at any given moment. Inventory control’s aim is to have the right amount of the right product at the right time.

IBM states that 56% of retail business leaders claim that their inventory information is not accurate. Does this ring a bell? It’s time to eliminate inefficiencies and streamline your operations. Get in touch to see how we can help!

You’re here because you want to improve the inventory control procedure. And this article offers a deep dive. Keep reading to learn:

• What inventory control is and how it works
• The challenges and hidden costs of poor inventory control
• Practical methods like ABC analysis and forecasting to streamline operations.
• Leveraging technology to optimize your inventory
• Optimizing warehouse layouts

What Is Inventory Control?

The aim of retail inventory control is to have the right amount of stock to meet customer demand. This isn’t easy, especially if your warehouse juggles thousands of SKUs. Inventory control helps to solve this problem by:

• Tracking and monitoring stock levels across all locations.
• Setting reorder points to automatically trigger new orders.
• Automate inventory with methods like FIFO or LIFO for efficiency.
• Receiving, labeling, and storage of new inventory.
• Conducting regular cycle counts to verify physical stock levels.

Ultimately, inventory control helps to prevent stockouts and overstocking and maximizes revenue through reduced carrying costs and less waste.

Effective Ways to Take Control of Your Inventory: Beyond the Basics

Inventory management isn’t a static task; it’s a dynamic process that demands precision and foresight. In a marketplace where efficiency dictates success, simply “keeping track” isn’t enough. You need strategic control. Let’s explore practical methods to achieve that, moving beyond rudimentary approaches.

1. Manual Tracking: The Tactile Touch

While often dismissed as archaic, manual tracking offers a level of tangible control that digital systems can’t replicate. It’s not just about writing things down; it’s about understanding the flow of goods through physical engagement.

• The Power of Observation: Manual tracking forces you to physically interact with your inventory. This hands-on approach provides a deeper understanding of stock movement and potential issues that might be missed by automated systems.



• Customization and Flexibility: You can tailor your tracking method to your specific needs, using custom forms, notes, and visual cues. This flexibility can be invaluable for businesses with unique inventory requirements.
• Limitations and Considerations: While effective for small-scale operations, manual tracking becomes increasingly cumbersome as inventory complexity grows. Accuracy is also susceptible to human error, and data analysis is limited.

2. Inventory Stock Cards: Item-Level Insight

Inventory stock cards offer a granular view of individual item movement, providing a detailed audit trail.

• Detailed Transaction History: Each card documents every transaction, including receipts, sales, and adjustments. This level of detail allows for precise tracking of inventory levels and identification of discrepancies.
• Easy Identification of Trends: By reviewing stock cards, you can identify trends in item movement, such as seasonal fluctuations or slow-moving items.
• Maintenance and Organization: The effectiveness of stock cards depends on meticulous record-keeping. Maintaining accurate and up-to-date cards requires discipline and organization.

3. Basic Spreadsheet Management: Structuring Data for Clarity

Spreadsheets bridge the gap between manual tracking and sophisticated software, offering a structured approach to inventory management.

• Customizable Reporting: Spreadsheets allow you to create custom reports and analyses, providing valuable insights into inventory performance.
• Data Visualization: Using charts and graphs, you can visualize inventory data, making it easier to identify trends and patterns.
• Formula-Driven Accuracy: Formulas can automate calculations, reducing the risk of human error and ensuring data accuracy.
• Scalability Challenges: As your inventory grows, spreadsheets can become unwieldy and difficult to manage. Data integrity can also be compromised if multiple users are involved.

4. Entry-Level Inventory Software: Automating for Efficiency

Entry-level inventory software provides automation and streamlined workflows, freeing up valuable time and resources.

• Real-Time Tracking: Software provides real-time visibility into inventory levels, allowing for informed decision-making.
• Automated Reordering: Automated reordering features prevent stockouts and minimize the need for manual intervention.
• Integration Capabilities: Many entry-level solutions integrate with other business systems, such as accounting and e-commerce platforms, streamlining operations.
• Selection and Implementation: Choosing the right software requires careful consideration of your specific needs and budget. Proper implementation and training are also crucial for maximizing its benefits.

Inventory Control vs. Inventory Management

Inventory control is not the same as inventory management. They’re often used interchangeably, but the focus of inventory control is much narrower than inventory management.

Inventory Control

Inventory control refers to the organization, tracking, and management of physical inventory. In a nutshell, store inventory control is “stock control.” Its core purpose is to accurately manage physical units and move them through the business.

For example, inventory control might include tasks like:

• Tracking items by quantity, location, and condition.
• Setting receiving protocols to facilitate warehouse organization.
• Conducting cycle counts and barcode scanning to maintain the most accurate stock counts.
• Loss prevention strategies to prevent internal and external inventory shrinkage .Inventory

Inventory Management

Inventory management, however, includes retail inventory control. But it also includes aspects like forecasting and planning. In other words, inventory control is one aspect of inventory management, which encompasses everything related to inventory.

Inventory management, for example, includes store inventory control as well as tasks like:

• Demand forecasting to maintain inventory efficiency.
• Managing the order quantity and timing to minimize overstocking.
• Maintaining supplier relationships to ensure reliable deliveries and favorable terms.
• Strategic supplier negotiation secures favorable pricing and optimal lead times, increasing profitability and supply chain.
• Using inventory data to identify trends, make decisions, and find efficiencies.

Also, implementing effective inventory management techniques will not only optimize your Stock control processes but also maintain a professional and organized receiving environment, ultimately contributing to a smoother and more efficient business operation.

Using Technology to Sync Inventory Control and Management

Ultimately, inventory management software typically provides automation and tools to facilitate better inventory control and management. It also helps to improve B2B customer service. Some of the features you would need include:

• Barcode scanner integration
• Reorder reports and adjustments
• Product details, histories, and locations
• Comprehensive inventory lists and counts
• Variants for bundles and kitting
• Syncing on-hand stock with sales and purchase orders

Challenges in Retail Inventory Control

Maintaining optimal inventory levels is critical for businesses – a misstep can lead to lost sales, wasted resources, and unhappy customers.

Here are some of the key obstacles that businesses face in the world of warehouse inventory control:

1. Forecasting Accuracy

Demand forecasting is often predictable and prone to sudden shifts. Seasonality, trends, and economic fluctuations can throw off forecasts. This leads to overstocking, slow-moving inventory, or stockouts of popular products.

Getting better forecasts starts with improving retail inventory control procedures. Accurate and consistent inventory counts and real-time inventory data help make inventory forecasts more accurate.

2. Bad Data

Controlling physical inventory requires quality data. Unfortunately, inventory data is often inaccurate or incomplete. Missed counts, issues with data sharing (between locations), or mis-scanned items, for example, cause this problem.

Bad data creates a murky overall picture of inventory and hinders data-driven decision-making. A missed count, for example, is a fast way to overstock or understock an item.

3. Visibility Issues

Inventory visibility refers to tracking and viewing inventory in real-time. However, in businesses with complex supply chains or large warehouses, limited visibility is a real problem. Lost or misplaced inventory translates to lost time and money.

For example, let’s say warehouse staff misplaced a pallet. They placed it behind several products and obscured it from view. This pallet is now unaccounted for and would skew any counts until it is found. Your inventory visibility would be limited.

4. Human Error

Human error causes a lot of store inventory control issues. These errors are often made due to:

• Ineffective or unclear processes
• Improper training
• Communication breakdowns
• Inefficiencies

Inventory control procedures seek to address these issues by putting clear processes in place.

5. Supply Chain Disruptions

Delays, shortages, and price fluctuations can throw off forecasts and strain businesses. Inventory control solves this with reorder automation. This can reduce the need for last-minute ordering, significantly reducing delays.

Overcoming Inventory Control Challenges

Navigating these challenges requires a multi-pronged approach and the right tech tools. First, you must set efficient processes and organization for managing inventory.

Next, focus on utilizing technology to be more efficient. Automation, machine learning-driven forecasting, and multi-location syncing – all features in modern warehouse inventory control tools – will help you get a handle on your inventory faster.

Hidden Costs of Poor Inventory Control

Stagnant revenue can often be tied to poor inventory control. However, this connection isn’t always obvious.

Instead, you might notice your carrying costs (costs to store and handle inventory) going up, low inventory turnover rates, etc.

Therefore, it’s important to track and recognize these indicators of poor inventory control. Here are some reasons why inventory control is important:

1. Financial Drain: Carrying costs, markdowns, capital tie-up, and write-offs eat away at profits. Inventory turnover ratio is a great metric to track to better understand the financial impact of inventory.

2. Operational Chaos: Inefficient processes, inaccurate records, and increased employee workload hinder productivity and accuracy. A few metrics to watch include inventory and picking accuracy, as well as put-away cost.

3. Customer Frustration: Stockouts, backorders, and unreliable availability damage brand loyalty and lead to lost sales. You can get a sense from customer reviews and feedback, but also be aware of your on-time delivery rate and packing accuracy.

4. Environmental Footprint: Excess waste and increased transportation contribute to a larger carbon footprint. You might watch metrics like cardboard and packing waste or delivery efficiency.

5. Missed Opportunities: Tied-up capital limits growth potential, and inaccurate forecasts hinder informed decision-making. One small business KPI to consider would be the inventory-to-working-capital ratio, which shows how much capital is tied up in inventory. An ideal rate would be 1:1; if you are over 2:1, you likely have an opportunity to improve.

These costs can quickly add up. Therefore, you need inventory management tools that put data at your fingertips. Once you’ve established a baseline, you can begin to make improvements.

Fortunately, there are some fast ways to overcome inefficient inventory control.

5 Key Steps for Improving Inventory Control

Maximizing inventory control requires a multi-pronged approach, and it will differ depending on the business type and industry. However, there are some tactics that apply to all businesses.

Here are some ideas to improve inventory control:

1. Know Your Numbers

A strong inventory control plan starts with accurate inventory data. You can then use this to build your inventory optimization plan. You might try:

ABC Analysis: Using the 80/20 Rule:

ABC Analysis categorizes inventory based on both its financial value and its sales velocity, classifying items as A (high-value, fast-moving), B (moderate), and C (low). This classification is a practical application of the 80/20 rule, also known as the Pareto Principle, which posits that approximately 80% of your sales revenue is often generated by just 20% of your inventory items.

Consequently, management of “A” items is paramount. These items, representing a smaller portion of your inventory, have a disproportionately large impact on your profitability. This necessitates precise tracking, accurate demand forecasting, and well-maintained safety stock levels to prevent costly stockouts.

Conversely, “C” items, which contribute less to revenue, can be managed with streamlined processes, reducing storage costs and freeing up resources for the more critical “A” items. This strategic approach to inventory management, guided by the 80/20 rule and implemented through ABC analysis, allows for optimal resource allocation and enhanced overall efficiency.

Demand Forecasting:

Use your historical data to build advanced demand forecasts. Inventory control systems typically include machine learning-driven forecasting, which can greatly reduce time and human error.

Safety Stock Levels, Reorder Points, and Par Levels:

Maintain a buffer stock (safety stock) for A items to prevent stockouts during unexpected demand surges. Regularly review and adjust these levels based on lead times and supplier reliability.

Reorder Points (ROP):

• The reorder point is the inventory level at which a new order should be placed to replenish stock. It ensures that you don’t run out of inventory before the new order arrives.

Formula:

• ROP = (Average Daily Demand × Lead Time in Days) + Safety Stock
• This formula helps to determine the precise moment to place a new order, considering both the average demand and the time it takes for the new stock to arrive.

Par Levels:

• Par levels represent the minimum quantity of inventory that should be kept on hand at all times. When inventory levels fall below the par level, a reorder is triggered.
• Essentially, the par level is very closely related to the reorder point.
• Par levels help maintain a consistent inventory flow and prevent stockouts.
• A simple par level calculation can be:
• Par Level = Average Daily Demand * Maximum Lead Time
• This ensures that even during the longest lead time, stock will still be available.

By using these formulas, you can have a better grasp on when and how much to reorder.

2. Embrace Technology

Technology is 100% a necessary tool to get better at inventory control. Some of the tools you will need include:

• Inventory Management Software: Invest in inventory management software to automate tasks like order processing, stock tracking, and reporting. Inventory control tools will be some of the central integrations of the platform.
• Barcode/RFID Systems: Use a warehouse barcode scanner or RFID scanning for faster picking, packing, and cycle counts, minimizing errors and streamlining inventory movement.

3. Optimize Your Processes

There are many different approaches to inventory control. Just-in-Time, FIFO, and LIFO are some of the methods you can use. Here’s a look at some processes you can implement:

• Just-in-Time (JIT) Inventory: Aim to receive inventory only when needed for production or sale. This reduces carrying costs and improves cash flow, e.g., a reduced inventory-to-capital ratio.
• Vendor Managed Inventory (VMI): This type of system means the vendor owns the inventory but would store it in your warehouse. The vendor is therefore responsible for managing inventory levels. A benefit for retailers is that you can leverage the vendor’s expertise and economies of scale. Communication and accurate data are vital for making vendor-managed systems work.
• Regular Cycle Counts: Conduct regular, focused inventory counts instead of full annual audits to identify discrepancies and ensure data accuracy. Barcode and RFID scanning that syncs to your inventory database makes this possible.

4. Communication Is Key

Inventory control doesn’t just happen in the warehouse. There should be synergy between all areas of the business, from sales and marketing to purchasing and operations.

Clear Communication: Establish clear communication channels between purchasing, sales, and operations to ensure everyone is aligned on inventory needs and forecasts.

• Extend this clear communication to your suppliers. Proactive communication with suppliers is vital for maintaining a smooth inventory flow.
• Regularly share demand forecasts and potential changes with suppliers to enable them to plan their production and deliveries accordingly.



• Foster open dialogue regarding lead times, potential delays, and any changes in supplier capacity.

Demand Collaboration: Encourage sales and marketing teams to share insights on upcoming promotions and potential demand shifts to inform inventory planning.

5. Continuously Improve

Finally, inventory control isn’t a set-and-forget process. Shifts and changes in demand will always require continual improvement.

• Review and Analyze: Regularly evaluate your inventory performance, metrics, and processes. Identify areas for improvement and adapt your strategies as needed.
• Embrace Change: Stay updated on industry trends and new technologies relevant to inventory management. Be willing to adapt and implement innovative solutions.

Must-Have Inventory Control System Features

Ultimately, inventory control software automates many tasks that can help you stay ahead of your stock levels by optimizing your warehouse layout system and process. Some must-have features include:

1. Real-Time Inventory Tracking

Real-time inventory refers to understanding your stock levels across the entire operation – retail stores, warehouse, in-transit – at any moment. Real-time inventory is especially necessary for businesses that do ecommerce.

The reason: You need to update your website regularly so that your storeroom, retail brick-and-mortar shops, website, and warehouse all show accurate data.

For example, without it, you would have to manually sync inventory data, which is time-consuming and leads to a lot of errors.

For real-time inventory tracking, you need two tools: barcode scanners and radio-frequency identification (RFID) tags. These make it possible to scan inventory at the register or the warehouse and sync that data instantly.

Interesting Read: Warehouse Inventory Counting Techniques: Tips for Better Accuracy

2. Learn Your Reorder Point Formula

Maintaining accurate inventory control requires you to balance demand and supplier reliability. To balance the two, you need to understand the reorder point for every product in your database.

A reorder point is an item’s minimum quantity that triggers automatic replenishment. Inventory control tools use data and machine learning to suggest reorder point thresholds.

Reorder Point Example:

• For instance, if your average daily demand for a product is 10 units, the lead time from your supplier is 5 days, and you maintain a safety stock of 20 units, the reorder point would be 70 units.
• This means you should place a new order when your inventory level reaches 70 units.

3. Set Par Levels

Par levels represent the minimum quantity of inventory that should be kept on hand at all times. When inventory levels fall below the par level, a reorder is triggered.

Par Level Example:

• For example, if your average daily demand is 10 units and the maximum lead time is 7 days, your par level would be 70 units.
• This ensures that even during the longest lead time, you will still have stock available.

4. 3. Set Reorder Points

Once you’ve estimated a reorder point, you can use automation to trigger the reordering process. This greatly reduces the risk of human error and oversight.

Orders would still need to be accepted. For example, using inventory control software, once a reorder point was met, an order notification would be sent to the warehouse manager. The manager could then accept the order and process it.

4. Understand Economic Order Quantity with Stock Rotation Methods

“The economic order quantity, or EOQ, refers to the optimum stock level the warehouse should maintain. Again, for a warehouse managing thousands of SKUs, this process is time-consuming. This is a distinct method from inventory valuation methods like FIFO/LIFO/FEFO.

• FIFO (First-In, First-Out): This method assumes that the oldest inventory items are sold first, ideal for perishable goods or items with short shelf lives.
• LIFO (Last-In, First-Out): This method assumes that the newest inventory items are sold first, often used for non-perishable goods.
• FEFO (First-Expired, First-Out): This method ensures items with the earliest expiration dates are sold first. This is crucial for perishable goods.

Strategic Stock Rotation Method Selection:

• FEFO (First-Expired, First-Out): This method is essential for preserving perishable goods, such as food and pharmaceuticals, where expiration dates dictate the order of sale. By prioritizing the sale of items closest to their expiration, businesses can minimize waste and ensure product freshness.
• LIFO (Last-In, First-Out): While less common due to accounting standards, LIFO can be strategically used for specific product categories. For example, in industries dealing with products that consistently increase in price, such as automobiles or certain raw materials, LIFO can lead to a lower taxable profit. By selling the newest, most expensive items first, the cost of goods sold is higher, resulting in a smaller profit and a reduced tax burden. This approach requires careful consideration and compliance with accounting regulations.

Software automates the EOQ process. They use data like demand forecasts, annual fixed costs of items, and the carrying cost per unit to fine-tune the EOQ. This can greatly reduce carrying costs for warehouses. It’s important to carefully assess and implement appropriate stock rotation methods (FIFO/FEFO/LIFO) based on your specific inventory needs, as these methods address the flow of goods and cost accounting, while EOQ focuses on optimal order quantities.”

5. Issue Quality Control

The quality of products is important to monitor, and software makes it easier. During regular cycle counts or doing a warehouse-wide QC assessment, you can mark products that fail QC as “On Hold.” This will prevent the product from being stocked or sold to customers.

6. Stocked and Non-Stocked Items

Accurately differentiating between items that are “stocked” versus “non-stocked” is one of the most critical aspects of inventory control. These terms have nothing to do with whether an item is housed in your warehouse. Rather, these are accounting terms that will ultimately simplify your financials and reporting.

A “stocked” item refers to a traditional inventory item that will reflect on your company’s balance sheet as an asset. A “non-stocked” item, because it’s typically “bought and sold” quickly, will impact your company’s profit & loss statement as either an expense or (cost of goods sold (COGS).

Designating the classification “stocked” or “non-stocked” to each inventory item within your software should be done when you first enter the item, along with all its pertinent information, into the system.

7. Conduct Regular Audits

Performing regular audits is another important process for managers that want to maintain inventory control at their warehouse. Warehousing high levels of inventory stock generally leads to overstocking, an unnecessary expense that impacts cash flow.

Measurable costs are associated with shelving items, and depending on whether those items are classified as “stocked” or “non-stocked,” your financial reporting could end up appearing inaccurate.

The key is to only warehouse an optimal quantity of each item, not too much and not too little. Your inventory management software is your best tool for conducting inventory audits in an efficient, streamlined manner.

Wrapping Up

Choosing inventory management software isn’t an easy decision to make. But it’s critical for gaining control of your inventory, reducing costs, and improving warehouse customer service. This is especially true as your business scales.

FTx POS is a cloud-based solution that includes a variety of warehouse management tools that are designed to help multi-location retailers succeed. Our warehouse management software includes:

• Barcode scanning
• Syncing with retail POS systems
• EDI support
• Picking tools for efficiency
• Purchase order automation
• PriceBook management

Reach out to us today to get started with FTx Cloud POS for $0 and enjoy low processing fees plus powerful tools to streamline your business!