Management Glossary » Management » Inventory Control – Definition, Importance, Example, Tips and Methods

Inventory Control – Definition, Importance, Example, Tips and Methods

What is Inventory Control?

Definition – Inventory control is the process of planning, coordinating, and controlling all aspects of your company’s inventory or stock including but not limited to: buying inventory, leasing inventory, acquiring goods/warehouse space (if needed), purchasing goods such as trucks, caravans, industrial equipment and raw materials (if there are inputs and outputs that need to be booked), trading inventory for services (if stocks break) and monitoring for safety and security (if the stock goes out).

Inventory is the raw materials supply on a business, and it’s governed by four key areas: purchasing, shipping, receiving, and warehousing. Inventory control (IC) ensures that the raw materials are moving through the business in a timely, efficient manner, reducing inventory costs while also improving product quality

Inventory control isn’t an easy task. In order to get your business to generate more revenue, you must first know how to properly control your inventory’s availability and affordability. Once you understand these basics, critical elements of inventory control will unfold before your eyes: the steps by which you control the availability of your products, how these steps impact the bottom line and, most importantly, how this data impacts your ability to make accurate long term decisions that will ultimately generate more profit.

Importance of Inventory Control

Effective inventory control will enhance your brand identity, protect your brand reputation, effectively deter unplanned stock market fluctuations, grant you flexibility in response to market challenges, improve productivity through labour efficiency and speed up turnaround times related to the product

How much stock do you need? What is your shelf life? Do you still have to replenish when there’s a problem or virus issue? Inventory control deals with getting the right amount of inventory on hand. It’s also about determining how often, if ever, the company needs to replenish the stock. With inventory control, it becomes clear what customers need before they can be supplied with the inventory they want.

Example of Inventory Control

There are many real-world examples of businesses that operate smoothly when it comes to inventory. Food manufacturing giants such as Nestlé say that managing inventory efficiently makes up 75% of product supply problems. The process starts with knowing how much we produce. Then we can work out how much we need to stock – this is known as the “last in, first out” philosophy. If we exceed our expectations, we get our products from stock – this is known as the “forward light technique”.


Effective inventory management is a vital control system for any business. Without it, customers would be forced to pay more for each product they bought. Businesses need to be able to control the product flow by keeping a tight control on their stock levels, helping optimize growth and minimizing the costs of retrofitting equipment or building new facilities when sales volumes exceed expectations. All in all, effective inventory management helps businesses maintain target prices, expand their sales, and minimize operating costs

Tips for Inventory Control

Tips for Inventory Control

1. Use Inventory Optimization Tools to your advantage

Inventory optimization is one of the most important things to consider when it comes to inventory control. Your business might be losing thousands of dollars every year due to inaccurate stock data and poor record-keeping. Consider utilizing inventory optimization tools to help you better control your inventory.

2. Employ business solutions for Inventory control that use real-time analytics

Increase employee productivity by implementing business solutions for inventory control that use real-time analytics to track your supply chain

3. Consider multiple factors

Consider these factors when creating an inventory control plan: inventory planning, demand forecasting, inventory measurement, inventory maintenance, linking logistics and security, and forecasting cash flow. After considering the factors listed above, you can determine how much inventory’s required to be protected against supply and demand disruptions and fluctuations

4. Focus more on the high performing SKU’s

Choosing which products to manage is a difficult decision, but always remember the most popular items are in high demand. Focus on that 20% that statistically make up 80% of the volume and manage them well so you maximize your sales and profits!

5. Go Mobile

How can you be expected to keep up with the latest trends and stay competitive if your business doesn’t have a mobile app? Even businesses that think they are simple and don’t need complex solutions need to think of having mobile apps and using more mobility.

Inventory Control Methods

Inventory Control Methods

There are multiple methods you can use for controlling inventory. Below are some of them

1. ABC Analysis

The first step in inventory management is to divide the stock into three sections. Category A consists of inventories that are high in value with low sales frequency or consumption and require careful monitoring as a result. The second group, category B stocks, have moderate values but decent sales frequencies which means they should be tracked closely too. Finally, you’ll find categories C comprised of those products with low valuations and high rates of purchase – these items don’t need much oversight at all!

2. Just in time technique

The company maintains an inventory level that is required during production. Under this method, you will not be having any excess inventory beyond the production requirements and it helps you get rid of the cost involved in storing excess stock. Here’s how these methods work: when old stocks are close to zero, new orders for supplies from suppliers arrive with a faster turnaround time than usual. This can help protect your business against delays even if they’re small or moderate; however, there may still be excessive costs incurred by shipping charges due to last-minute order placement which could negate some of those savings

3. Economic Order Quantity (EOQ)

In this way, the company will be able to determine how much inventory should they order at any point in time and when that order should occur. Considering a minimum level of inventory is always important because if there’s not enough then the business may suffer greatly.

The formula for EOQ is

EOQ = √(2DK / H), or the square root of (2 x D x K / H) where D is Annual fixed costs, K is demand in units and H is carrying costs per unit.

4. Managing FSN Inventories (Fast, slow and non-moving inventory)

Inventory is classified as fast, slow and no-movement. The order of the inventory will be based on how quickly it moves through a category: Fastest to Slowest. All inventories are categorized according to movement in some way or another which helps determine where they should go in an ordering system from fastest moving items that need attention first (fast) all the way down to those that don’t move at all (no-motion). A company should always have a plan for what will happen if an item moves from one category into another – this can’t just be done by chance because it would make prediction more difficult