Inventory control systems are essential for any business that holds stock. They allow companies to accurately track and manage the movement of goods in and out of their inventory, providing real-time visibility into stock levels and enabling them to make informed decisions about purchasing, production, and sales. This is important for maintaining optimal stock levels, reducing costs, and improving overall efficiency. In this blog, we will be discussing the different types of inventory control systems, the benefits of using them, and how to implement one in your business.
What Is Inventory Control System?
An inventory control system is a set of procedures and software that helps businesses track and manage the movement of goods in and out of their inventory. It provides real-time visibility into stock levels and enables businesses to make informed decisions. These systems help businesses maintain optimal stock levels, reduce costs, and improve overall efficiency by automating and streamlining various inventory management tasks. Inventory control systems can include manual record keeping, barcode scanning, and enterprise resource planning (ERP) systems, depending on the size and needs of the business.
Almost every business owner has experienced significant amounts of working capital blocked in their company due to unused inventory in the warehouse. A robust inventory control system leads to cost savings for businesses and ensures inventory availability at the right time for production.
Inventory management and control is designed to help businesses maintain accurate and up-to-date records of their inventory, which can include raw materials, semi-finished goods, finished products, and supplies. In this way, it helps businesses reduce stockroom costs, improve stock efficiency and identify problems within their inventory processes much in advance.
It streamlines inventory replenishment and delivery process in order to meet consumer requests and boost sales!
How Does Inventory Control System Work?
Different types of inventory control systems offer diverse functionalities. One of these important functions include sourcing data from sales, purchases and material requirement functions to enable accurate inventory valuation.
By maintaining a central repository of stock information within the company, an inventory control system provides updates on which items are selling, and which are not, while also minimizing costs associated with holding and managing unnecessary inventory.
Advanced inventory management solutions offer features such as barcode tagging to identify existing inventory easily, with reduced manual effort. With barcoding, all details about each item are recorded in a database. Users can access information such as the item's price, quantity, location of the item within the warehouse, and more.
Inventory control techniques that are cloud-based enable users to track and manage inventory while traveling between facilities or sites. With real-time operations, this system helps to maintain accurate stock counts, itemized inventory and purchase history and also offers live notifications when stock crosses safety levels.
It supports in overseeing reordering points, ensures accurate analysis to support inventory forecasting and balance, and eventually enhances supplier communication and customer satisfaction.
Types of Inventory Control Systems
Over time, the purpose of inventory control systems has evolved to include multiple features. Here are a few widely used inventory control systems:
1. Periodic Inventory System
A periodic inventory control system conducts recurrent inventory counts at predetermined intervals. This helps the firm's business operations determine the precise time frame required to replenish inventory.
Collecting periodic inventory counts, helps a business to maintain its supply levels by using the lowest possible cost for replenishing supplies. It helps ensure that the right amount of inventory is available at the right time.
2. Perpetual Inventory System
Under the perpetual inventory control system, the inventory data is updated in real time through an automated system. For every movement in sales, procurement, and returns, this system tracks items through various places and processes of production.
In other words, it keeps track of all details related to the products that are sold and purchased by your company over time. It is used as a way to control inventory, maximize space utilization and minimize costs.
3. Barcode Inventory System
Barcode technology is more precise and effective than manual procedures. When a worker scans a barcode with a barcode scanner or a mobile device, the inventory levels are automatically updated, which helps to understand inventory item usage and consumption patterns.
In addition to being an efficient way for businesses to track the volume of products being sold, it also offers a more accurate view of products that need replacing.
Importance of Inventory Control System
An integrated inventory control system enables businesses to streamline the processes of procurement, production, and distribution. Let’s look at some important benefits of inventory control system:
1. Reduced ordering cost
A company spends money when it places an order. These costs are known as ordering costs and are in addition to the actual inventory cost; example transportation costs. Besides transportation, inventory items must also be tested and examined to assess their quality.
Depending on how many orders are placed, the ordering costs will change. Less capital is required to carry stocks when inventory items are less. A sound inventory control system aids in reducing these costs by forecasting data.
2. Effective working capital management
A major chunk of working capital is blocked in inventory. One example of this scenario is when a big shipment arrives at a factory, but the inventory team does not have insights about where all of that stock is required.
This causes an increase in holding costs and may stress a firm's short-term liquidity, increasing interest on debt and operating expenses. An automated inventory control system avoids these scenarios by collaborating with purchase and sales teams to ensure optimal inventory levels. This ensures effective flow of working capital throughout the business and leads to stress-free financials.
3. Efficient production
Inventory control directly impacts production processes. When stock reordering and inventory tracking processes are streamlined, businesses can maximize production capacity and ensure better economies of scale. With the help of a live inventory control system, the management can schedule production more easily and avoid delays.
4. Quantity discounts in procurement
Inventory control results in improved supplier communication which helps to manage bulk orders easily, ensure timely follow ups and avoid delay in payments. This leads to smooth procurement processes and enables businesses to get better discounts regularly. In the long run, this may significantly lower the cost of inventory items and boost earnings.
5. More satisfied customers!
A consumer may order a product you indicated is in stock earlier, but if you don't have it in your inventory currently, it may lead to a backorder, delayed order delivery or canceled order. This may result in a dissatisfied customer who might not prefer to purchase from your store again.
Error-free inventory operations ensure that customer order details are captured accurately, processed in time across the inventory and production cycle, and delivered as per customer expectations. It also enables updates to be shared with customers leading to a higher number of satisfied customers.
Inventory Control vs Inventory Management
Inventory control and inventory management terms have a few minor differences:
|Basis of Difference||Inventory Control||Inventory Management|
|Scope||Inventory control is mainly concerned with monitoring and control of existing items in the warehouse.||Inventory management may involve the management of inventory throughout the supply chain like procurement, production, and distribution.|
|Goal||It makes sure that the existing inventory items are in good condition and are in the right quantity.||Inventory management looks after all end-to-end operations to ensure production cycles have the required materials, at the right time and that orders are delivered on time.|
|Actions||Functions of inventory control systems include storing inventory, managing activities such as transportation and testing. Ensuring that the stored items are in good condition, checking their expiry, spoilage, etc.||Forecasting the demand and making strategy accordingly. Managing the movement of inventory items throughout the supply chain.|
Inventory Control Best Practices
Let’s understand the best practices for inventory management process as follows:
1. ABC Analysis
ABC analysis involves categorizing various items of inventory based on a variable. The variable can be sales volume, the value of the inventory items, its consumption rate, or other factors. As the name suggests, following are the categories of the ABC concept:
A Class of Inventory - High sales value, expensive, these items of inventory demand the highest control.
B Class - Moderately priced, with mid-volume sales. Control is eased accordingly.
C Class - low-valued items having negligible sales, demanding lowest inventory control.
2. Last In, First Out (LIFO)
Under the LIFO method, the latest purchased inventory is issued first to production. This practice reflects the current market price of inventory items in the production cost and, in turn, reflects in the sales price. This way, you can ensure that your products are not underpriced. It is also beneficial for perishable items, as the most recent entry is issued first.
3. First In, First Out (FIFO)
Under FIFO, the inventory item that first entered the warehouse is issued for production, and thus, it prioritizes the older items. This is a systematic method that helps to ensure that stock does not remain unused in the warehouse for a longer period.
4. Batch Tracking
Another useful method for organizing inventory items at a warehouse facility is batch tracking. Under this method, products with the same production date and materials are grouped together.
The batch tracking system helps to properly identify items, their location, and their status within a facility according to the production flow. It helps in seamless management of items by categorizing items that need to be stored separately from the others.
Inventory Control Made Easy With TranZact
Several SME businesses are still managing inventory through time-consuming, manual spreadsheet tools. Inventory control can be made easy with TranZact, India’s best business automation tool. It offers a digitized inventory control system that ultimately ensures optimum inventory levels to meet demand without leading to overstock or excess inventory.
TranZact integrates the inventory control function with purchases, sales and production to help SME manufacturers and business owners maintain live operations on inventory management and production planning! It offers real-time inventory evaluation and tracking facilities to offer greater inventory control with ease!
FAQs on Inventory Control System
1. Which is the best inventory control system for small businesses?
For small business owners, it’s important that inventory control is simple and hassle-free. Due to a focus on rapid growth, they need an inventory system that offers features such as key approval layers within stock management along with being cost-effective and insightful. TranZact fulfills all these requirements and is also quickly implementable, making it the best inventory control system for small businesses.
2. What is Inventory management?
Inventory management is the process of overseeing the flow of goods, including ordering, storing, and handling them in an organization. It involves tracking the quantities of products in stock, forecasting future demand, and replenishing supplies as needed to ensure that the business has the right amount of products on hand to meet customer demand.
3. What are the advantages of inventory control systems?
An inventory control system helps to reduce ordering costs and effectively manage working capital, It also helps to schedule efficient production cycles and cope with sudden spikes in demand. Ultimately supports in delivering goods more quickly, resulting in more satisfied customers.
4. Is Excel good for inventory?
Although excel offers some shortcuts and formulae for inventory calculations, it is largely a manual method which requires individual entries each time. Also, it’s not possible to auto flow in data into excel from other sources like sales, production and materials planning modules. Therefore, maintaining inventory using Excel may not be the best solution for your business.