Julia Hallin 15 February 2017 3 min read What's in this article? The need for effective stock control methodsTypes of inventory control methodsChoosing the right inventory control methodImplementing effective stock control procedures The need for effective stock control methods Effective stock control methods make sure that you have the right inventory items in stock at all times to meet customer demand, whilst ensuring business profitability. If you have well-established stock control procedures in place, you can help prevent stockouts that result in lost revenue, or a build-up of excess stock, that ties-up working capital and affects your bottom line. Types of inventory control methods There are a number of different inventory control methods you can implement, depending on your industry and the type of inventory items you stock in your warehouse. These include: Fixed quantity reordering At each reorder point, an order is placed comprising of a fixed amount. While this is a simple inventory control policy to follow, it takes no account of potential supply delays or peaks in demand; and the lack of safety stock increases the risk of outages. Just In Time (JIT) Rather than using reorder points, stock is ordered only when needed. This is ideal for slow-selling or special items, saving warehousing costs and keeping shelf space available. However, it is not suitable for high or medium demand stock items, and using a JIT approach across an organisation is seldom successful. Minimum/maximum stock levels This involves keeping stocking levels within certain parameters; stock is not permitted to fall below a minimum level and never exceeds the maximum. With consistent demand, stock will be optimised and regularly rotated, but peaks and troughs in demand, such as those caused by seasonality, can cause overstocking and out-of-stock scenarios. Economic order quantities (EOQ) The economic order quantity can be used to calculate the most ‘cost effective’ amount of stock to reorder. The EOQ is the point at which inventory carrying costs and ordering costs are both at their lowest. Choosing the right inventory control method Different businesses require different inventory control methods to achieve optimum stocking levels. Choosing the best one for your business depends on a number of considerations: 1. Speed of stock rotation The faster stock moves through your warehouse, the greater the risk of stock outages. Fast stock rotation will require greater levels of safety stock. 2. Number of warehouses In a multiple warehouse operation, each warehouse will need to be regarded both as a separate entity and as part of the whole operation; stock rotation may vary across warehouses, and stocking levels should be coordinated across operations. 3. Range of stock items and product life cycle Different stock items may have different product life cycles. Those with shorter durability will need to be moved through the warehouse more quickly. However, variations in demand for each item also need to be taken into account, leading to a hybrid approach to stock control. 4. Current issues with stock control Stockouts and obsolete stock are tell-tales signs that you have inventory control problems. These trends present an opportunity to review stock control procedures. Implementing effective stock control procedures Successfully optimising your stock levels relies on best practice inventory control procedures including: Maintenance of safety stock You will always need to keep an optimised amount of safety stock in reserve. This makes it easier to prevent stockouts and unhappy customers when there are any fluctuations in demand or delays in the supply chain. Suitable warehouse layout Fast-selling stock should be the most accessible to the loading dock – storage and racking should be arranged to allow popular items to pass through the warehouse easily. However, the layout should also be adaptable to peaks in demand for slow-selling items. Coordination across warehouses By coordinating all the warehouses in your network, potential stock outages can be prevented by relocating items from warehouses with a surplus, to those where demand is higher. This level of flexibility will require an inventory control software system that provides real-time data on stocking levels across warehouses. Inventory management systems coupled with Enterprise Resource Planning (ERP) software will help to maintain stock levels while linking warehouse operations with strategic business management. Choosing software with add-on capabilities helps meet the changing needs of a growing business. Software as a Service (SaaS) facilitates this with its inherent flexibility, for example, new functions can be added on an ad-hoc basis without expensive system overhauls. To find out more about how you can improve your stock control procedures, download your free copy of our eBook “6 Inventory Control Techniques for Stock Optimisation” here and learn how to cut costs while increasing profits and customer satisfaction. Share Julia Hallin 15 February 2017 3 min read Sign up for the EazyStock Newsletter Stay on Top of the Latest News, Trends, Tips, and Best Practices for Supply Chain Management, Inventory Optimisation, Replenishment & Purchasing, and Demand Forecasting with Our EazyStock Newsletter.