Inventory control is the process of managing stock levels to ensure warehouses have the right products in the right quantities at the right time. It plays a crucial role in stock control, cost management, and operational efficiency. Without proper inventory control, warehouses face overstocking, stockouts, and increased storage costs, which can impact profitability and customer satisfaction.
An effective inventory control method helps businesses optimize space, streamline workflows, and improve tracking accuracy. It ensures that stock is always available without excessive surplus, reducing the cost of goods sold (COGS) and improving cash flow. By implementing inventory control software, warehouses can automate stock tracking, minimize human errors, and gain real-time insights for better decision-making.
There are several types of inventory control systems, each with unique benefits. Some warehouses rely on barcodes and radio frequency identification (RFID) to enhance accuracy and reduce manual errors. Others focus on reorder points to automate restocking and prevent shortages. Proper management of raw materials is also essential for maintaining smooth operations and preventing disruptions in the supply chain.
This blog will explore:
- Key inventory control methods and how they improve warehouse efficiency
- The role of technology, including barcodes, RFID, and automation
- How to set reorder points to prevent stock issues
- Ways to reduce the cost of goods sold (COGS) through better inventory practices
- Best practices for managing raw materials and finished goods
By the end, you’ll understand how to implement proper inventory control to maximize efficiency, reduce costs, and improve overall warehouse performance.
The Fundamentals of Inventory Control
Effective inventory control is essential for maintaining optimal stock levels, reducing costs, and ensuring smooth warehouse operations. However, it’s important to distinguish between inventory control and inventory management, as they serve different functions within the supply chain.
- Inventory Control focuses on the tracking and management of stock within the warehouse. It involves monitoring stock levels, managing storage locations, and ensuring that the physical inventory matches the records. This process aims to prevent issues such as overstocking and stockouts by maintaining accurate records and efficient storage practices.
- Inventory Management encompasses a broader scope, including demand forecasting, procurement, and the overall planning of inventory from suppliers to the warehouse and finally to the customer. It deals with ordering the right quantity of products, at the right time, to meet customer demand while minimizing costs.
Understanding this distinction is crucial, as mismanagement in either area can lead to significant operational challenges.
Common Challenges in Inventory Control
Warehouses often encounter several challenges in maintaining effective inventory control:
- Overstocking: Holding excess inventory can tie up capital and increase storage costs. It’s reported that reducing overstock situations can lower inventory costs by up to 10%.
- Stockouts: Running out of stock can lead to missed sales opportunities and dissatisfied customers. Stockouts account for 40% of lost sales, as customers are more likely to switch to competitors when items are unavailable.
- Inaccurate Records: Discrepancies between physical stock and inventory records can cause issues in order fulfillment and planning. Inaccurate inventory information stands as one of the biggest challenges in warehousing, often arising from manual processes prone to human error.
These challenges highlight the importance of implementing robust inventory control methods and utilizing inventory control software to maintain accuracy and efficiency.
Key Inventory Control Metrics
Monitoring specific metrics is vital for assessing the effectiveness of inventory control practices:
- Inventory Turnover Ratio: This metric measures how often inventory is sold and replaced over a specific period. A higher turnover rate indicates efficient inventory management. The Inventory Turnover Ratio is among the top three inventory performance metrics tracked by businesses.
- Carrying Cost of Inventory: This represents the total cost of holding inventory, including storage, insurance, and obsolescence. Managing carrying costs is crucial, as inefficient space utilization can lead to increased operational expenses. Many warehouses suffer from suboptimal organization, using only 68% of their available space effectively.
- Inventory Accuracy Rate: This measures the percentage of inventory records that match the physical stock. Maintaining a high accuracy rate is essential to prevent stock discrepancies and ensure reliable data for decision-making.
By closely monitoring these metrics, businesses can make informed decisions to optimize their inventory levels, reduce the cost of goods sold (COGS), and enhance overall operational efficiency.
Inventory Control Methods & Techniques
Using the right inventory control method is essential for improving efficiency, reducing storage costs, and preventing stock discrepancies. Since warehouses have different inventory volumes, product types, and operational needs, they must choose the right approach carefully. Below are some of the most effective inventory control techniques used in modern supply chains.
ABC Analysis – Prioritizing High-Value Inventory
One of the most popular inventory control methods is ABC Analysis, which classifies stock based on value and sales frequency. This approach helps businesses allocate resources efficiently.
- A-items: High-value products with low sales volume. Since they impact revenue the most, they require strict monitoring and careful tracking.
- B-items: Moderate-value items with a mid-range sales frequency. These products need periodic reviews to ensure availability.
- C-items: Low-value, high-turnover items. Because they sell quickly, they require minimal oversight and bulk storage.
By focusing resources on A-items, businesses improve efficiency and reduce waste. In fact, studies show that ABC Analysis can increase inventory accuracy by up to 95%, which helps improve cash flow and reduce unnecessary stock.
Just-in-Time (JIT) Inventory – Minimizing Storage Costs
Another effective inventory control method is the Just-in-Time (JIT) inventory system. This approach ensures that goods arrive exactly when needed for production or order fulfillment. As a result, businesses lower storage costs, minimize waste, and improve cash flow.
However, JIT requires precise demand forecasting and strong supplier coordination. For example, companies like Toyota use JIT to lower carrying costs while maintaining high operational efficiency. In fact, research indicates that JIT can reduce warehouse costs by 15-30% due to lower storage requirements (source).
FIFO & LIFO Methods – Managing Inventory Flow Efficiently
In addition to JIT, warehouses use First-In, First-Out (FIFO) and Last-In, First-Out (LIFO) to manage stock flow efficiently:
- FIFO (First-In, First-Out): Warehouses sell the oldest stock first. This method prevents spoilage and obsolescence, making it ideal for industries like food, pharmaceuticals, and consumer goods.
- LIFO (Last-In, First-Out): Warehouses sell the newest stock first. This approach helps businesses during inflationary periods since it reduces taxable income. However, LIFO is less common due to strict accounting regulations.
Since FIFO helps businesses prevent product losses, it is widely used. In fact, 5-10% of warehouse waste results from product expiration, which makes FIFO a critical inventory control method.
Cycle Counting vs. Physical Inventory – Ensuring Accuracy in Stock Records
While inventory control techniques help prevent stock discrepancies, regular audits are necessary to maintain accuracy. Businesses typically use two main methods:
- Cycle Counting: Employees count small portions of inventory on a scheduled basis, such as daily, weekly, or monthly. Because this method does not disrupt operations, it helps businesses maintain real-time accuracy. In fact, warehouses that use cycle counting experience a 30% reduction in stock discrepancies (source).
- Physical Inventory: Warehouses conduct a full inventory count periodically, often once a year. Although this method provides an accurate stock snapshot, it requires significant labor and often slows operations.
To ensure efficiency, most warehouses combine cycle counting with periodic physical inventory audits. This approach allows them to improve stock control while keeping operations running smoothly.
Technologies That Enhance Inventory Control
Technology plays a critical role in inventory control by improving accuracy, efficiency, and real-time visibility. As warehouses become more complex, adopting automation and data-driven solutions is essential for reducing errors, optimizing stock levels, and increasing operational efficiency. Below are the key technologies transforming inventory control today.
Inventory Management Software– Automating Inventory Tracking
An inventory management software is the backbone of modern inventory control. It automates stock tracking, order fulfillment, and space optimization, ensuring warehouses operate with maximum efficiency and accuracy. A robust WMS eliminates the need for manual tracking, reducing human errors and improving overall stock control.
Key Benefits of a WMS in Inventory Control:
- Real-time inventory tracking: Ensures businesses always have accurate stock data.
- Automated cycle counting: Reduces the need for time-consuming physical inventory audits.
- Optimized picking and putaway: Uses smart algorithms to minimize travel time and increase efficiency.
- Integration with barcode & RFID systems: Enhances inventory accuracy through automated data capture.
Cyzerg’s WMS solution, Warehouse Orchestrator, enables seamless inventory control with real-time tracking, automated replenishment, and AI-driven analytics. By leveraging automation and data insights, businesses can significantly reduce operational costs and improve order fulfillment speed.
Barcode & RFID Tracking – Reducing Manual Errors and Improving Accuracy
Barcode and RFID (Radio Frequency Identification) tracking have become essential for improving inventory accuracy. These technologies enable warehouses to track stock movements in real time, reducing the risk of mislabeled, misplaced, or lost inventory.
- Barcodes are widely used for quick and cost-effective inventory tracking. Employees can scan items at receiving, storage, and order fulfillment stages, ensuring stock levels remain updated in the WMS.
- RFID technology takes tracking a step further by using radio waves to scan multiple items simultaneously and without direct line-of-sight scanning. This improves inventory accuracy rates to over 99% and reduces the need for manual stock checks.
RFID-enabled tracking solutions allow warehouses to monitor stock movements in real time, reduce picking errors, and streamline warehouse operations. With barcode and RFID integration, businesses can minimize manual data entry errors and improve overall inventory visibility.
IoT & AI in Inventory Control – Real-Time Data Insights and Predictive Analytics
The Internet of Things (IoT) and Artificial Intelligence (AI) are transforming inventory control by providing real-time visibility, predictive analytics, and automation.
- IoT sensors track temperature, humidity, and stock levels in real time, ensuring that perishable goods and sensitive materials are stored correctly.
- AI-driven analytics use historical data and machine learning algorithms to predict demand fluctuations, optimize reorder points, and reduce stockouts or overstocking.
- Automated alerts (like those from Warehouse Workflows) can notify warehouse managers when inventory reaches critical levels, helping them take proactive action.
AI-powered analytics and IoT-enabled solutions allow warehouses to make data-driven decisions, track stock movements in real time, and improve supply chain efficiency. With AI-driven demand forecasting and smart inventory control software, businesses can maintain optimal stock levels while reducing waste and costs.
A report by McKinsey states that AI-driven inventory control can reduce excess stock by up to 35%, leading to significant cost savings.
Best Practices for Effective Inventory Control
To achieve efficient inventory control, warehouses must follow structured processes, leverage technology, and train employees effectively. Without these best practices, inventory discrepancies, stockouts, and excessive carrying costs can quickly disrupt operations. To prevent these challenges, here are four proven strategies to enhance inventory control and accuracy.
1. Establishing Reorder Points and Safety Stock Levels
One of the most important steps in inventory control is ensuring that stock levels remain balanced and optimized. If businesses fail to set reorder points and safety stock levels, they risk frequent stockouts or excessive overstocking.
- Reorder points indicate when stock needs replenishing. This calculation is based on average sales velocity, supplier lead times, and demand fluctuations.
- Safety stock acts as a backup, protecting against unexpected demand surges or supplier delays. This buffer is especially critical during peak seasons when order volumes increase rapidly.
For instance, research shows that warehouses using automated reorder point systems reduce stockouts by 30-50%, resulting in fewer lost sales and smoother operations.
To simplify inventory replenishment, automated reorder point management systems allow businesses to maintain optimal stock levels while avoiding excessive storage costs.
2. Implementing Real-Time Inventory Tracking
Without real-time visibility, inventory control becomes reactive rather than proactive. This often leads to operational inefficiencies and incorrect stock levels. Fortunately, real-time inventory tracking provides businesses with the tools to manage stock more effectively.
- RFID and barcode scanning improve accuracy by tracking inventory at every stage, from receiving to order fulfillment.
- IoT sensors monitor stock levels continuously, ensuring that inventory records remain accurate. This is particularly useful for warehouses managing perishable or sensitive goods.
- AI-driven analytics analyze inventory trends, helping businesses make data-driven decisions on when and how much to reorder.
In fact, a study by Zebra Technologies found that 77% of warehouse managers consider real-time inventory tracking critical to meeting customer expectations.
3. Training Warehouse Staff for Inventory Accuracy and Accountability
Even though technology plays a major role in inventory control, human error remains one of the biggest contributors to stock discrepancies. Therefore, investing in staff training and accountability programs is essential for maintaining inventory accuracy.
- Employees should participate in regular training sessions on proper scanning, data entry, and stock handling procedures.
- Clear accountability measures must be in place to ensure that every team member follows inventory control protocols.
- Implementing a WMS with role-based access prevents unauthorized data modifications, which helps maintain data integrity.
Additionally, businesses that implement structured inventory training programs see a 25% improvement in inventory accuracy and a 20% reduction in picking errors. By incorporating Cyzerg’s Warehouse Orchestrator, businesses can enforce standardized workflows, automate stock tracking, and improve employee efficiency.
4. Standardizing Receiving, Storage, and Picking Processes
Since warehouses process thousands of inventory movements daily, inconsistencies in receiving, storage, and picking lead to errors, delays, and misplaced stock. To prevent these issues, businesses must establish clear, repeatable procedures across all warehouse operations.
- Receiving: Every incoming shipment should be scanned, inspected, and verified against purchase orders before being moved to storage.
- Storage: Implementing a structured slotting strategy ensures that high-demand items are stored in easy-to-access locations, minimizing retrieval time.
- Picking: Utilizing advanced picking strategies such as batch picking, zone picking, or wave picking helps reduce labor costs while improving order accuracy.
For example, industry research shows that warehouses with standardized processes and WMS automation experience a 99.5% improvement in order accuracy and a 30% reduction in labor costs.
By following these best practices, warehouses can significantly enhance inventory control, accuracy, and efficiency. In particular, implementing automated reorder points, real-time tracking, employee training, and standardized processes enables businesses to reduce errors, lower costs, and improve order fulfillment rates.
Common Inventory Control Mistakes to Avoid
Even with the right inventory control methods, businesses often make critical mistakes that lead to operational inefficiencies, increased costs, and lost sales. Fortunately, identifying these issues early can help warehouses implement corrective actions before they impact productivity. Below are two of the most common inventory control mistakes and how to avoid them.
Poor Demand Forecasting and Its Impact on Stock Levels
One of the biggest challenges in inventory control is maintaining optimal stock levels. Without accurate demand forecasting, businesses risk either overstocking or running out of essential inventory. Both scenarios create financial and operational issues that can negatively affect customer satisfaction and profitability.
- Overstocking occurs when warehouses store more inventory than needed, increasing carrying costs, storage space usage, and the risk of product obsolescence. In fact, excess inventory can lead to an estimated 20-30% increase in holding costs annually.
- Stockouts, on the other hand, result in missed sales opportunities and dissatisfied customers. Studies show that 43% of small businesses frequently run out of stock due to poor inventory planning.
To improve demand forecasting, businesses should:
- Leverage AI-powered analytics to analyze past sales trends and predict future demand.
- Monitor seasonal trends to adjust stock levels based on historical purchase patterns.
- Use real-time inventory tracking to ensure data-driven stock replenishment.
Lack of Standardized Processes Leading to Inefficiencies
Another common mistake in inventory control is the lack of consistent, standardized processes. Without structured workflows, warehouses experience misplacements, delays, and errors that slow down operations and increase labor costs.
For instance, when receiving shipments, if employees follow inconsistent procedures, they may forget to verify product counts, scan items correctly, or store goods in the right locations. As a result, inventory discrepancies increase, making it difficult to maintain accurate stock records.
To prevent these issues, businesses should:
- Implement a Warehouse Management System (WMS) to automate and enforce workflows.
- Train employees on proper receiving, storage, and picking procedures.
- Use barcode and RFID tracking to ensure inventory records remain accurate in real time.
Industry research shows that warehouses with standardized inventory control processes improve order accuracy by up to 99.5% and reduce labor costs by 30%. By integrating Cyzerg’s WMS solutions, businesses can streamline operations, reduce human error, and improve overall efficiency.
Although inventory control can be complex, avoiding these common mistakes makes a significant difference in operational efficiency and cost savings. By improving demand forecasting and enforcing standardized processes, warehouses can minimize stock issues, lower expenses, and improve order fulfillment rates.
Conclusion
Effective inventory control is the foundation of a profitable, efficient, and well-organized warehouse. Without it, businesses face stock discrepancies, higher operational costs, and customer dissatisfaction. However, by implementing proven inventory control methods, leveraging advanced technologies, and avoiding common mistakes, warehouses can achieve seamless stock management and improved profitability.
By adopting these strategies, warehouses can significantly reduce costs, improve inventory accuracy, and increase operational efficiency. Investing in automation and data-driven inventory control solutions ensures that businesses remain competitive in today’s fast-paced supply chain environment.
Ready to take your inventory control to the next level? Schedule a demo with Cyzerg today and discover how our advanced solutions can optimize your warehouse operations!
