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.
An inventory control system is an automated tool used to monitor inventory levels across multiple stores. It supports both small and large businesses to follow up on incoming stock and reordering processes, and track real-time movement of inventory.
An inventory control system plays a critical role in building a high-performing inventory workflow, reduces costs, and improves customer satisfaction!
In this blog, we will be discussing the different types of inventory control systems, the inventory control definition, the features of an inventory control system, the benefits of using them, and how to implement one in your business.
What Is Inventory Control System?
An inventory control system is a tool that maintains live records of inventory quantities, locations, and other stock specifications of the business, across its supply chain. This tool also supports business owners to forecast optimum inventory levels with data-driven insights. It enables them to avoid shortages and minimize wastage from excess inventory.
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 is an organized way to ensure cost savings for businesses and 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. An inventory control system streamlines inventory replenishment and delivery process in order to meet consumer requests and boost sales!
How Does an Inventory Control System Work?
Different types of inventory control systems offer diverse functionalities. One of these important functions includes sourcing data from sales, purchases, and material requirement functions to enable accurate inventory valuation.
An inventory management and control system provides updates on the sales performance of items. It helps minimize costs associated with unnecessary inventory by maintaining a central repository of stock information within the company. 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 the stock crosses safety levels. The many benefits of inventory control include that it supports overseeing reordering points, and accurate analysis to support inventory forecasting. It 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. This 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 procurement, production, and distribution processes. Let's look at some important benefits of an inventory control system:
1. Reduced ordering cost
When a company places an order, it incurs expenses known as ordering costs, which include transportation costs in addition to the actual inventory cost. Furthermore, inventory items need to undergo testing and examination to ensure their quality. The ordering costs fluctuate based on the number of orders placed. When there are fewer inventory items, less capital is needed to maintain stocks. A robust inventory control system plays a crucial role in reducing these costs by utilizing data forecasting.
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 supposed to be deployed.
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 an 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. A live stock control system enables the management to 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 delays 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!
If a consumer places an order for a product that was previously indicated as in stock but is currently unavailable in your inventory, it can result in backorders, delayed order delivery, or even order cancellations. Such situations can lead to customer dissatisfaction and may discourage them from making future purchases from your store.
An inventory control system ensures seamless inventory operations so that customer order details are captured accurately. It supports orders to be 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.
Having understood the advantages of an inventory control system, let's see what are the differences between inventory control and inventory management.
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 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, and 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 strategies accordingly.
- Managing the movement of inventory items throughout the supply chain. |
Inventory Control Best Practices
Let's understand the best practices for the 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, the 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 the 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. This stock control system 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 the 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 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 of Inventory Control System
1. Which is the best inventory control system for small businesses?
Due to a focus on rapid growth, small business owners 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, an inventory control system supports the quick delivery of goods, 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 that requires individual entries each time. Also, it's not possible to auto-flow 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.
5. What are the types of inventory?
There are generally four types of inventory: raw materials, work-in-progress (WIP), finished goods, and MRO (maintenance, repair, and operations) inventory. Raw materials are the components used in production, WIP inventory represents partially completed products, finished goods are the final products ready for sale, and MRO inventory consists of items necessary for maintenance and operations.
6. What is the inventory control process?
The inventory control process involves managing and overseeing the flow of inventory throughout the supply chain to ensure optimal levels are maintained. It includes activities such as monitoring inventory levels, forecasting demand, placing orders, receiving and inspecting inventory, and implementing measures to minimize stockouts and excess inventory.
7. What is the purpose of inventory control?
The purpose of inventory control is to maintain the right quantity of inventory at the right time to meet customer demand while minimizing carrying costs and stockouts. It aims to strike a balance between ensuring sufficient inventory to fulfill orders and avoiding excessive inventory that ties up capital and incurs additional expenses.
