Inventory control is an interesting topic in economics. It it the smooth running, harmonization, and control of supply, distribution, recording, and storage of resources. It aims at ensuring that enough materials are retained to meet the current demands of the consumers. This needs to happen without losing or excessively using them.

Business individuals take inventory control seriously because they are able to maximize on the profits. In the meantime, they are minimizing on the inventory stock. However, they must also focus on fulfilling the needs of the consumers. Here are some of the ways in which inventory control can be useful for stock optimization.

7 Ways Use Inventory Control for Your Stock and Finances

1. Optimize the Supply Chain by Purchasing Fewer Quantities Often

Business activities like storing, tracking, and warehousing may have a negative impact on your improvement as a business. This is since extra stock may be held up due to the affected bottom line. However, you can only achieve this if you purchase inventory that meets a months’ total sales as per the prediction. This is in addition to a small stock for safety while you reorder regularly.

At this point, you should note that obtaining a discount for bulk orders would be acceptable. However, this targets total sales of several months and not more. For instance, you could achieve this through categorizing inventory and automating demand forecasting.

2. The ABC Analysis and Classification

Business experts argue that an inventory that places the fastest selling products closer to the shipping, staging, and receiving area is the best performing. This is because it optimizes on the products with the highest demand. Therefore, it saves on the time of moving, packing, and distributing. This system also argues that it is essential for products to move to the back as their demand decreases to create room for the stock with a higher turnover.

The aim of using the ABC analysis and classification in inventory control is to ensure a minimal time consumption locating and moving products in the warehouse. A proper warehouse management makes inventory categorization efficient. Also, it allows the store to develop a superior customer experience.

3. Application of the Inventory Turnover Ratio

In economics, an inventory turnover ratio is in use to help determine the total inventory used within a given month. The products with a short shelf life are seen to have a high turnover ratio. This is due to their increased sales volume that leads to increased profits. In addition, they are accompanied by lower profit margins.

Calculating and analyzing the inventory turnover of each product in the warehouse is a good stock optimization strategy. This is because their replenishment calculations are conducted accurately and with optimization in mind due to the identified demand cycle. Variability in the supply chain may, however, come due to the varying demand of various products.

4. Determining and Applying Optimized Purchasing Processes

A business manager will first consider the demand pattern and the historical sales data before establishing the best purchasing procedure for his or her business operations. Through the adopted procedure, a business is likely to have an adequate and excellent control of its inventory. Keeping track of inventory will enable a company identify the obsolete stock in its warehouse.

Obsolete stock refers to the products that have no inventory turnover and have not sold out in the last year. The management is then able to determine how and when to liquidate the obsolete stock before the business incurs extra costs such as transport and storage costs on the stock.

5. Applying an Automatic Inventory System

This also goes by the name of as perpetual inventory system and it helps business managers to keep a close watch of the quantity and value of each product in stock. Inventory balances in large scale businesses are optimized following the maintenance of a reliable inventory optimization strategy alongside an Enterprise Resource Planning (ERP).

A warehouse management system is also in common usage in the place of the latter. Such innovations are meant to help maintain low costs while the service rates remain high. This, therefore, indicates that using optimization software is essential for inventory control in companies since they allow stock optimization.

6. Maintaining and Revising Policies Yearly

Business individuals have the responsibility of determining what maximum and minimum quantities of inventory need to be in a warehouse. Through this, the management is able to optimize on the reorders that need to take place. Safety stock levels that allow the supply in a company not to go below certain set levels must also be set.

An average inventory level is also active in the process to contain the costs. You will need to avoid surplus and low supply of stock warehouses. Consequently, you will reduce the risk of surprise costs.

7. Preparing Inventory Budgets

Inventory budgets in most businesses go through preparation once every year before the purchase of the stock. To maintain positive inventory control, managers should include the total ownership cost throughout the operating period. This means summing up costs such as those that come with:

  • Logistics;
  • Raw materials;
  • Business operations;
  • Supply chain management;
  • Other costs that are part of the total ownership costs.

Preparing a report that summarizes the stock levels, total sales, and expenses from your warehouse is a good inventory control strategy for businesses. The more accurate the budget is, the more in control the management is about its inventory. Therefore, they are able to keep track of its performance with respect to the sales volume and profits.

The Bottom Line

Inventory control is important in businesses because the management is able to optimize on the stock through higher sales and high profits. The performance of a business depends on its stock. This implies that using reliable software can help give you better inventory control. Optimization of stock is the main objective of every company. This is because it allows the maximization of profits and minimization of costs.

Considering the benefits that inventory control has, it is important that you recognize some of the strategies that you can apply in your business to help optimize on stock.

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