An inventory manager’s guide to stock control
Updated 04 July 2022 • 15 min read
Stock control is a vital aspect of any business, as it provides insight into how a company keeps track of its inventory and how much stock is available at any given time.
Below, you'll find guidance on setting up stock control methods and choosing the right type to help your business succeed.
What is stock control?
Stock control, also called inventory control or management, is the collection of processes involved with maintaining appropriate levels of stock. Keeping the right amount of stock is critical to meeting customer demand without shipping delays or overspending on storage costs.
From raw materials to finished products, stock management applies to every item used at various stages of production. But stock control is more than keeping track of the whereabouts of products. Ideal stock control procedures make sure that capital isn't spent unnecessarily and help prevent supply chain issues.
Keeping track of stock may sound simple, but extenuating circumstances like economic instability and even weather events can make predictions difficult, calling for more advanced methods of inventory management.
What are the main components of stock control?
Minimum stock levels
The minimum stock level is the least amount of any product a business should keep in supply.
Generally, when following a recommended stock control method, anytime a stock level dips below the minimum, a business may run into an issue regarding the loss of revenue due to unmet demand.
Maximum stock levels
Your maximum inventory and control stock level is the largest amount of any item you need in stock.
Keeping too much stock can cost you, so not going over could be imperative to your business. However, some companies prefer to keep a large amount of stock for reasons like a high product turnover rate, long supply timelines or anticipated price increases.
A reorder point is the level of stock that indicates the need to reorder. Having a reorder point is helpful because it eliminates guesswork and keeps a business consistently stocked.
Why is stock control important?
Stock control is an essential business component — without it, unanticipated needs could result in lost revenue.
Improves forecasting accuracy
Keeping accurate inventory data helps effectively forecast stock needs, allowing for efficient stock control.
Accurate numbers on your inventory, like bestsellers, storage prices, incoming and outgoing stock, and seasonal figures, will provide you with the information you need to know how to manage stock control effectively. Proper stock control methods allow your business to prepare for the unexpected.
Reduces dead stock levels
Unsold stock means your business has spent capital that could be better spent elsewhere. Whether the capital could be put towards purchasing more popular items or investing in new machinery, dead stock indicates that your stock control method needs improvement. Effective stock management methods employ historical data to determine optimal figures when purchasing stock, so capital is spent wisely.
Stockouts are a result of poor anticipation and result in poor customer experiences when you run out of a given stock item. By using an effective stock control method, forecasting shouldn't be an issue, and your stock should always be within your ideal levels.. Too much stock drains capital, and too little jeopardises revenue.
Identify slow-moving products
Without a stock control method, identifying slow-moving products could be more difficult.
Without effective inventory management, your stock is merely a collection of unsold assets until they're sold. When your stock doesn't sell, or you lack enough to sell, you're losing money. Conversely, when stock sits, it drains resources.
Efficiently managing your stock means you're keeping the right inventory levels coming into your business, and the right levels are sold. When this happens, you have more access to capital to invest elsewhere, optimising your cashflow.
Improves customer experience
Maintaining good inventory levels provides customer confidence and satisfaction. When customers come to you for a product or service, they want to know you'll have what they need.
Poor stock control management could mean inventory dipping below the minimum, resulting in a stockout and lost revenue. Keeping your customers happy is essential to running a successful and smooth operation.
What are the main methods of stock control?
Various methods can be used to anticipate future demand in the market more accurately. With a recommended method you can help lead your business to a more lucrative position.
Just In Time (JIT)
The JIT method is designed to reduce stock carrying costs, decrease waste and increase efficiency.
While there are benefits to this method being that it maximises cashflow and reduces storage costs, the demand forecast must be accurate; otherwise, the result could be a stockout or lost revenue.
First-in, first-out (FIFO)
The FIFO concept is that the first inventory acquired is the first to be sold. Benefits to the FIFO method include simple calculations to figure the costs and value of stock despite pricing changes. Also, products with the oldest receiving date are picked and sold first.
Economic order quantity (EOQ)
Most businesses want to minimise costs while keeping their stock at an optimal level, maximising warehouse space. The EOQ method was created to pinpoint optimal inventory. Ordering appropriately helps you avoid stockouts and know your safety stock levels.
To figure out your EOQ, you need your holding costs, annual demand and order cost.
An increasingly popular method of managing stock, the vendor-managed inventory method is a hands-off approach delegated to a third party.
The vendor-managed inventory approach allows you to pay for stock only once it's been sold. The business sells its goods, but never physically holds stock, because the vendor ships the goods directly to the customer. Also, the vendor assumes all risks of managing stock, which lets businesses operate with less pressure.
The batch control method is helpful when a business needs to keep track of each item. Typically, an SKU (pronounced "skew") code will label each product.
These codes sometimes have serial numbers or expiration dates associated with them, which can be useful for companies selling food or medical supplies that have expiration dates.
What is a stock control system?
A stock control system encompasses all the tasks required for efficient inventory and stock maintenance: product tracking, turnover rate, shipping and receiving, storage inputs and reorders.
A stock control system could also be described as an inventory management system, both of which can be delivered in the following ways:
Some businesses prefer the manual approach of writing everything down on paper. Stock books, stock cards, and spreadsheets can be used to track your products. While this may work for some businesses, it's difficult to sustain as a company expands.
Stock cards system
Also called bin cards, a stock card contains a table that tracks the running unit price of a product, its sales price and the number of items in stock. This system can also track purchases, returns and more. But consistent use and constant updates are necessary for a stock card system to work; otherwise, inaccurate data will cause issues.
Spreadsheets like Excel can process large amounts of data without using an automated system. Capturing product data using a spreadsheet can be useful when consistent updates are made. Customisation is possible, which can be helpful when adding in coding, high-level macros, or integrations with other systems.
Stock management software
Software solutions for inventory management are often no longer cost-prohibitive for smaller companies.
Businesses can track stock counts in real-time, incorporate analytics, run cost comparisons and inventory reports, identify dead stock and track customer patterns through stock management software. Plus, simple software can often scale to incorporate greater functionality as your company expands.
What are the main types of inventory control?
Two main types of systems help companies track their inventory: the periodic system and the perpetual system.
Perpetual inventory control
Perpetual inventory control systems are often more expensive than periodic systems and offer more accurate and current information.
Using an automated system, you know at all times how much stock you have in your inventory. Perpetual tracking systems are typically superior to periodic systems and are a wise choice to avoid stockouts.
While most manual work isn't required with perpetual inventory systems, manual stock counts are still needed to ensure accuracy.
Periodic inventory control
Many smaller businesses employ the periodic inventory system as it doesn't require intelligent software or scanning.
While this system may feel easier at times as it doesn't require consistent record-keeping, regular counts are needed to track inventory. When physically counting inventory, often, a business will need to delay all regular duties.
Stock control best practices
Knowing how to manage stock control is a challenge for most businesses. Multiple aspects factor into an efficient process, but you can get started with the following pointers.
Understand your minimum stock levels
Stock control applies to various aspects of managing your inventory, and a crucial factor will be your minimum stock control levels.
Having a clear number of items you need to maintain in your inventory at all times helps you see with certainty when to order more. Automating your purchase process can help further, freeing you up for more pressing tasks.
Categorise stock using ABC analysis
ABC analysis is a method for organising inventory into a hierarchy. By arranging products to create a tier of most important to least important items, picking, packing, and tracking becomes easier.
For example, A-level products are the highest priority, needing constant replenishment. B-level items are medium-value stock, requiring regular re-orders. Finally, C-level inventory is brought in through minimal ordering.
Optimise warehouse storage procedures
Smart warehouse storage helps operations run smoothly. Organising your inventory in a way that's easily accessible is important for efficiency. Efficient storage control means fulfilment flows easily.
Establish optimal reorder points
Identifying a clear reorder point using a reorder point formula helps guarantee that you'll always have stock.
Increased demand and market slumps can catch you off guard. However, like a reorder point formula, mathematical equations can help you get your orders right the first time.
Furthermore, efficient stock maintenance can bolster your business and keep you in a good position during tough economic times.
Carry safety stock for critical items
Safety stock is fundamental for all businesses. You risk losing customers and revenue when your inventory experiences a stockout. Carrying safety stock to cover unexpected circumstances can make sure you always have products to sell.
Without safety stock, your unsatisfied customers may go elsewhere.
Build strong supplier relationships
Relationships play a significant role in the success of businesses. Not only are your relationships with customers important, but your relationships with suppliers are vital as well.
Maintaining good rapport with suppliers by paying your invoices on time and communicating respectfully makes it easy for them to be good to you in return. When you're in a tough position, a supplier that enjoys working with you is more likely to offer help.
Generate automated reports
Inventory control systems can track large data, but they're useless without analysis. Many systems can automatically create reports for stock logs, inventory statuses, historical data and financials, allowing insight into your business needs.
Sharing these reports with suppliers might also help your business acquire inventory by allowing them to prepare for your needs.
Conduct risk assessments
Risk is a factor in any business. Whether it's inventory mistakes, a sales spike, or cashflow issues, preparing for the unexpected is critical to success. Conducting risk assessments regularly to determine worst-case scenarios and considering how you might confront them could save you when they happen.
Reconcile stock and order volumes
Accurate stock data is needed for a business to stay profitable. Sorting through the numbers to figure out what is selling and what is sitting can help you reconcile stock and order volumes.
Additionally, looking at how quickly some items sell versus how slowly others do can help you identify where changes need to be made, enabling you to make smarter decisions.
Invest in a stock control system
Inventory management software can do tedious stock control procedures for you, freeing you to focus on larger tasks.
Intelligent software like MYOB helps ensure you never run out of high-selling items and provides insight into your stock in ways you might've missed otherwise. By understanding your business thoroughly, you can make better choices.
What to look for in a stock control system
Different businesses require different functionalities in a stock control system. To optimise your inventory management process, you want to choose the right system for your needs.
Real-time inventory tracking
A company's customer service and success are often reliant on real-time inventory tracking. Knowing what you have available, how much, and where it's located can help ensure timely order fulfilment and happy customers.
Inventory is moving constantly in many businesses and as orders are processed quickly, real-time tracking helps guarantee accurate insight into what's happening in your business at any point in time.
Supports the procurement process
Knowing what to buy at what times can be a challenge when you don't have an accurate handle on your inventory. Intelligent stock control software systems can help you gain control of your procurement process. When you know what stock you've got, where it's located, and how much it's worth, you're better able to make smarter decisions for your team.
Smart stock control software lets you automate purchase orders, store supplier details, view transaction history, store supplier discounts and refund purchase orders for damaged goods.
Integrates with other business systems
Intelligent stock control software should be able to seamlessly integrate with other business systems you currently use. When it comes to integrated stock control, investing in software that integrates with your accounting back end and customer relationship management (CRM) system could be essential.
Reports on real-time inventory value
Knowing what you have in stock is imperative; however, knowing how much it's worth is just as important. Finance managers need to consider where a company's value lies at all times.
Having inventory management software to account for variations in volume, price, and currency can help with valuations. Further, the ability to track variables like courier fees and waste, as well as a live view of your profit margin, can offer valuable insight.
Automates inventory alerts
Smart stock control software won't only keep track of your inventory, but it should also prevent your warehouse from stockouts. Automatic alerts when stock is low should help you create purchase orders quickly and mitigate potential losses.
Detailed inventory reports
Software to track your inventory should also provide detailed information in an easily digestible report. Generating helpful reports and providing insight into potential problems and making operations more efficient could reduce administrative tasks. You'll want features like turnover rate, stock age, unit sales, margins and backorder rate.
Without software to track multiple warehouses across vast areas, tracking an enterprise's inventory can be challenging. Integrating software that'll work miles apart is needed for larger operations.
Inventory control KPIs you need to track
Different KPIs can provide valuable insights. Here are a few of the more common ones used for tracking inventory management and stock control.
The stock-to-sales ratio is the amount of inventory in storage against the number of sales. The calculation can be utilised to adjust the stock to keep higher margins.
The sell-through rate compares the inventory sold and the inventory received from a manufacturer, which helps in evaluating supply chain efficiency.
The average inventory figure comes from the amount of stock a company has during a period of time. The ideal is for businesses to maintain a consistent average inventory figure over a year’s time.
The backorder rate is the number of orders a company is unable to fulfil when an order is placed and indicates how well a business stocks its popular products.
Stock turnover rate
The stock turnover rate, also known as the inventory turnover ratio, is the number of times a business sells and replaces inventory in a single period. The formula is used to determine how much stock the company is selling.
Lost sales ratio
The lost sales ratio is the number of days one product is out of stock compared to the expected sales rate, indicating when a company is understocking a product.
Inventory shrinkage is the amount of product a company should have in stock but is unable to account for, which may be due to theft, miscounts, damage or fraud.
Carrying costs, which are also known as holding costs, are the percentage of value a business pays to keep inventory in storage, including rent and labour.
Simplify stock control with MYOB
Stock control isn’t easy to do on your own, but you can simplify the task with intelligent stock control software. By incorporating MYOB’s inventory management features, you can enjoy automated tasks and fewer administrative chores.
MYOB helps you understand what’s selling, oversee warehouse performance, and never run out of items again. By letting MYOB automatically track your stock, you can focus on growing your business.
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Principles of supply chain management (SCM) for beginners
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