Inventory Control Methods for Stock Optimisation
- The goal of inventory control
- Types of inventory control methods
- Implementing inventory control methods
The goal of inventory control
Inventory control has one main goal: to make sure that inventory is available at all times – while also ensuring business profitability. Stock outages result in lost revenue while excess stock ties up working capital and affects profitability. Different business models will 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 the 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 lifecycle
Different stock items may have different product lifecycles; 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
Stock outages and obsolete stock are tell-tales signs that you have inventory control problems. These trends in inventory control present an opportunity to review procedures.
Types of inventory control methods
To get your warehouse up to speed, there are a number of different inventory control methods you can implement including:
Fixed quantity re-ordering
At each re-order point, an order is placed comprising of a fixed amount. While this minimises storage costs and prevents unnecessary expenditure, it takes no account of potential supply delays or peaks in demand; the lack of safety stock increases the risk of outages.
Just In Time (JIT)
Rather than using re-order 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 inventory never exceeds the maximum. With consistent demand, stock will be optimised and regularly rotated, but peaks and troughs in demand can cause overstocking and stock outages.
ABC inventory analysis
Rather than using a “one size fits all” approach, ABC inventory analysis involves grouping each item according to demand. Fast-selling items will be category “A”, medium-selling items category “B”, and slow-selling items category “C”.
By calculating the correct Economic Order Quantity (EOQ) for each category, stock levels can be optimised across operations. While this is the best method for stock control, item categories and EOQs need adjusting as demand fluctuates and new data becomes available.
Implementing inventory control methods
Successful stock optimisation relies on best practice inventory control methods including:
Maintenance of safety stock
A minimum amount of safety stock will always need to be kept in reserve. This makes it easy to keep your customer satisfaction levels high 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 and prevent overstocking elsewhere.
This level of flexibility will require a 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 optimisation while linking warehouse operations with strategic business management.
Choosing software with add-on capabilities helps the system adapt to the changing needs of a growing business. Software as a Service (SaaS) facilitates this with its inherent flexibility; new functions can be added on an ad-hoc basis without system overhauls or the need for a large package support department.
To find out more on how you can boost your inventory control, 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.