What is an Inventory Control System and How it Works

Mga kababayan na negosyante, are you struggling to keep track of your inventory and facing issues like overstocking or frequent stockouts? Imagine a system that simplifies this process and boosts your operational efficiency. That’s exactly what an inventory control system does. 

A study on Right Goods Philippines Incorporated showed that implementing inventory control significantly boosted repeat purchases, with promotions influencing sales by 27.4%. This data shows the crucial role of effective inventory management in enhancing customer retention and sales.

This guide will help you understand the significance of an inventory management system, explore its various types, and discover how it can be customized to meet the specific needs of your business in the Philippines.

What is an Inventory Control System?

An inventory control system comprises procedures and technologies that monitor goods from suppliers to warehouses and finally to the point of sale. Its primary goal is to maintain an optimal balance of stock, ensuring sufficient inventory to meet customer demands without excess.

The role of this system extends beyond merely counting products; it is crucial for efficient business operations. Additionally, by systematically tracking inventory levels, businesses avoid overstocking or understocking, preventing lost sales and increased costs.

To support this, many software providers offer inventory control systems that automate and streamline the process. This also makes inventory management more accurate and less labor-intensive.

Benefit of Inventory Control Systems

These systems streamline operations and reduce costs by enabling real-time stock tracking. This capability allows businesses to respond swiftly to market demands and adjust inventory levels accordingly, maintaining operational efficiency.

Key benefits of an inventory management system include:

• Optimized Logistics: By ensuring that the right products are at the right place at the right time, this system reduce transportation costs and improve delivery times, enhancing the overall logistics process.
• Significant Cost Savings: Effective inventory management minimizes unnecessary stock holding and reduces the costs associated with excess inventory, such as storage fees and spoilage.
• Enhanced Customer Satisfaction: With better stock management, businesses can prevent stockouts and backorders, ensuring that customer orders are fulfilled promptly and accurately, which leads to higher customer satisfaction and loyalty.

Adopting a robust system is essential for keeping your business competitive and profitable in a fast-paced market. By ensuring efficient inventory management, you can meet customer demands effectively while maintaining a streamlined supply chain, positioning your business for long-term success.

Why Is Inventory Control Important?

Inventory control plays a vital role in ensuring a product-based business operates efficiently and profitably. As one of the largest components of working capital, inventory directly affects a company’s financial health and operational performance.

Below are key reasons why implementing an effective inventory control system is essential:

1. Optimize working capital: Inventory is a significant portion of current assets for many businesses. By managing stock levels efficiently, companies can free up funds tied to excess inventory, enabling investment in expansion, innovation, or profit maximization.

2. Avoid overstock and shortages: An inventory control system helps businesses strike the perfect balance between having too much stock and running out. Overstock leads to issues like spoilage, excess storage costs, or dead stock, while shortages result in lost sales and dissatisfied customers.

3. Improve customer satisfaction: Effective inventory control ensures products are always available to meet customer demand. With 62% of customers abandoning brands due to poor service, avoiding out-of-stock is crucial to retaining loyalty and maintaining sales.

4. Reduce operational costs: By optimizing inventory processes, businesses can cut costs associated with storage, spoilage, and excess stock handling. This creates a leaner operation that allocates resources more effectively.

5. Enhance supply chain efficiency: Inventory control improves visibility across the supply chain, reducing the risk of misplaced or lost goods in the warehouse. This streamlining allows businesses to respond more quickly to market demands and customer expectations.

6. Boost profitability: Proper inventory management directly contributes to increased profitability. Lowering inventory costs frees up cash flow while avoiding lost sales due to shortages ensures a steady revenue stream.

7. Prevent loss of loyal customers: Out-of-stock scenarios can lead to lost customers, with research showing 55% of shoppers refuse to buy alternatives if their preferred product isn’t available. Inventory control mitigates these risks and builds stronger customer relationships.

8. Minimize spoilage and dead stock: Inventory control systems help track product lifecycles and avoid excess stock that may become unsellable. This prevents losses caused by spoilage or outdated goods, ensuring better cost-efficiency.

Implementing an inventory control system isn’t just about keeping track of stock; it’s a strategic move that drives business success. From optimizing working capital to enhancing customer satisfaction, effective inventory control ensures a company stays competitive, efficient, and profitable.

Inventory Control vs. Inventory Management

Inventory control focuses on maintaining optimal stock levels to avoid overstocking or running out of items and ensure product availability. It involves real-time tracking and regulating inventory flow, which is crucial for maintaining smooth operations and meeting customer demands.

On the other hand, inventory management encompasses a broader scope, including the entire inventory lifecycle, from procurement to sale. It involves controlling stock levels, managing supplier relationships, forecasting demand, and ensuring efficient order fulfillment.

Types of Inventory Control Systems

They are typically divided into two types:

1. Periodic inventory system  

A periodic inventory system is a method where inventory counts are conducted at regular intervals, such as weekly or monthly. This approach allows businesses to assess their stock levels periodically, which can help in budgeting and planning for future inventory needs.

However, this system can lead to inaccuracies between counts, as it doesn’t track inventory changes in real-time. For businesses integrating storage and inventory control in their business plan, relying solely on periodic counts might result in discrepancies.

2. Perpetual inventory system

A perpetual inventory system offers continuous, real-time tracking of stock levels, leveraging technology like barcode scanners or RFID. This system ensures that every stock movement is recorded instantly, providing accurate data for decision-making.

For businesses, especially those focused on storage and inventory control in their business plan, perpetual systems enhance inventory management by reducing errors and improving stock accuracy.

Periodic and Perpetual inventory system is tailored to specific business needs, optimizing stock levels and improving operational efficiency across different environments. Furthermore, this customization ensures that the system adapts seamlessly to varying operational demands, enhancing overall effectiveness.

Inventory Control Techniques

Effective control relies on various techniques to maintain the right stock levels, minimize costs, and meet customer demands.

1. ABC inventory

ABC inventory is a technique for separating items into three classes based on their importance and value to help prioritize resources. Class A items are the most valuable and require the most attention, while classes B and C represent less critical items.

Businesses can optimize inventory monitoring and allocate resources efficiently by focusing on high-value items. Prioritizing class A items in storage and inventory control systems ensures that crucial stock is always available.

2. FIFO and LIFO

FIFO (First-In, First-Out) and LIFO (Last-In, First-Out) are techniques for managing stock rotation. The FIFO ensures that the oldest inventory is sold first, reducing the risk of obsolescence, while LIFO prioritizes selling the most recently acquired items.

Businesses can use these methods to align their storage and inventory control in their business plan with market demand. For example, FIFO is commonly used in industries where products have expiration dates, ensuring that inventory monitoring is effective and reduces waste.

3. JIT inventory

Just-In-Time (JIT) inventory is a technique where inventory is received only when needed for production or sales, minimizing storage costs and reducing waste. This method requires precise inventory control and reliable suppliers to ensure stock arrives quickly.

JIT inventory helps businesses optimize storage and inventory management by minimizing excess inventory. Moreover, this method can significantly reduce holding costs and improve cash flow in a well-executed storage.

4. Batch tracking

Batch tracking involves monitoring inventory by grouping products based on production batches. This technique is crucial for industries where traceability is essential, such as food and pharmaceuticals, ensuring that inventory control meets regulatory standards.

Batch tracking enables businesses to enhance inventory monitoring by tracking specific batches, thus improving their storage and inventory control system. For instance, companies can use batch tracking to manage the shelf life of perishable goods more effectively.

5. Cross-docking

Cross-docking is a logistics technique where products are directly transferred from inbound to outbound transportation without long-term storage. This method reduces the need for extensive warehouse space, optimizing the storage and inventory control system.

Cross docking as part of inventory control management can streamline operations, reduce storage costs, and improve inventory monitoring. It’s useful for businesses aiming to enhance storage and inventory management in business plan by reducing lead times.

6. Consignment

In consignment inventory, a supplier places goods at a retailer’s location, but the retailer only pays for the items once they are sold. This technique allows for flexible inventory control, reducing the retailer’s risk and ensuring a steady supply of products.

Consignment offers benefits in storage and inventory control management by reducing upfront costs. For businesses integrating this technique into their storage and inventory control system, consignment provides an efficient way to manage stock levels without tying up capital.

Inventory Control Methods

Inventory control methods help businesses determine the right amount of supply to order, store, and sell, using a mix of expertise, forecasts, and strategic planning. These methods aim to balance cost efficiency while meeting customer demands, ensuring a business operates effectively.

One key metric used in inventory control is Days of Inventory Outstanding (DIO), which measures how long a company holds stock before selling it. A lower DIO indicates better efficiency, as excessive stock ties up capital and increases storage costs, a challenge especially for small businesses.

Recent trends show an 8,3% increase in DIO scores over the past five years, highlighting the need for better inventory control practices. Optimizing inventory control systems not only reduces storage costs but also ensures businesses free up working capital, allowing for improved financial stability and growth.

Best Practices for Effective Inventory Control

Implementing this system requires careful planning and execution. Here are some tips to ensure effectiveness:

1. Regular stock audits: Conduct frequent stock audits, like cycle counting, to ensure accurate records and early detection of issues such as theft or damage. This practice strengthens inventory control management and prevents costly discrepancies.
2. Prioritize inventory management: Focus on managing inventory based on demand, turnover rates, and value. Prioritizing essential items in your storage and inventory control system ensures critical stock is always available when needed.
3. Use automated systems: Implement automated inventory control systems for real-time tracking and automated reordering. These systems enhance storage and inventory control, reducing human error and ensuring stock levels meet market demands.
4. Optimize warehouse space: Design layouts to maximize efficiency, reduce retrieval times, and prevent overstocking. Effective space utilization in your storage and inventory control system minimizes costs and streamlines operations.
5. Forecast demand accurately: Use forecasting tools to anticipate market trends and adjust inventory levels. Accurate forecasting helps maintain optimal stock levels, thus improving overall inventory control management.
6. Leverage inventory management system: Automate processes using an inventory management system from HashMicro. This software offers real-time tracking, automated reordering, and analytics, making it easier to maintain inventory control.

Avoiding common pitfalls is also critical for maintaining an accurate inventory. These include failure to update data, ignoring supplier performance, and neglecting customer feedback on product quality.

Tips on Getting Started with Inventory Control

Starting with inventory control can be challenging, but a solid foundation is crucial for effective management. Following these tips can help you create a system that enhances accuracy, reduces costs, and ensures smooth operations.

1. Develop an inventory control plan: Outline how goods flow from production to sales and removal. Include metrics for tracking stock levels and forecasts to guide your inventory management efforts.
2. Implement and adjust your strategy: Put your plan into action and regularly review it. Adjust based on performance data and changing demand to ensure your inventory control system remains efficient and responsive.
3. Maintain consistent labeling: Use consistent labeling methods, such as barcodes or RFID tags, for easy tracking. Consistency is critical to accurate inventory management and helps prevent storage and inventory control system errors.
4. Establish reorder points: Set specific reorder points for items to avoid stockouts and overstocking. Use methods like ABC analysis to optimize when and how much to reorder.
5. Always stock critical items: Identify them and ensure they are always in stock. This helps avoid disruptions and ensures that essential products are readily available when needed.
6. Regularly audit your warehouse: Conduct regular audits to check for issues like spoilage, theft, or errors. These audits help maintain accurate records and ensure your inventory control system functions properly.

By following these steps, you’ll be better equipped to manage your inventory efficiently and prevent common issues like stockouts or overstocking.

Ease Inventory Control With HashMicro’s Inventory Management System

HashMicro’s Inventory Control System is tailored to enhance operational efficiency and streamline stock management processes. Utilizing advanced technology, HashMicro offers a comprehensive solution that addresses the core challenges faced by modern businesses.

Some Features of HashMicro’s Inventory Control System:

• Stock forecasting: Predicts future inventory never been easier with historical data and trends. This helps businesses manage stock levels effectively, reducing overstocking and stockouts while ensuring that inventory meets demand accurately.
• Fast moving & slow moving stocks analysis: This feature identifies fast and slow-moving items. By analyzing sales velocity, businesses can optimize inventory levels, improve stock turnover, and make informed purchasing decisions to enhance profitability and reduce excess inventory.
• Stock reservations & reporting: It allows businesses to reserve stock for specific orders and generates detailed reports on inventory status. This ensures accurate tracking, efficient order fulfillment, and better inventory control.
• RFID warehouse rack stock in & out automation: HashMicro uses RFID technology to track stock movements in real-time. This enhances accuracy and efficiency in managing inventory, reducing manual errors and streamlining warehouse operations.
• Product expiry management: Tracking product expiry dates and sends reminders. Additionally, it ensures timely use or disposal of perishable items, helping manage inventory effectively and comply with quality standards.

Adopting HashMicro System can transform your inventory management into a dynamic and proactive component of your business. With its powerful features, it not only ensures operational excellence but also supports sustained business growth by adapting to changing market conditions.

Conclusion

Inventory control is crucial for businesses to manage stock levels efficiently, reduce costs, and avoid operational disruptions. Proper inventory management system helps ensure that products are available when needed, which enhances customer satisfaction and supports profitability.

HashMicro Inventory Management Software offers a robust solution to streamline inventory processes. With real-time tracking and automated updates, the software helps maintain optimal stock levels and improves accuracy, making it a valuable tool for effective inventory management.

To further experience the benefits, schedule a free demo for HashMicro Inventory Management Software today. See how it can transform your inventory management and meet your business needs with a tailored solution.

Frequently Asked Questions

• What is the importance of an inventory control system?

  This system is crucial for maintaining optimal stock levels and avoiding overstocking or stockouts. It enhances operational efficiency and customer satisfaction by ensuring products are available when needed.

• What is an example of inventory control?

  A common example of this is the use of a barcode system to manage stock levels in real-time. This method allows businesses to monitor inventory movements and adjust orders accordingly and accurately.

• What is the basic purpose of inventory control?

  The primary purpose is to manage the supply chain efficiently by maintaining the right balance of stock. It aims to minimize holding costs and maximize the availability of goods to meet customer demands.