How to control inventory? Some internal warehouse management tips

First, what is inventory control?

Inventory control is an integral part of a broader term - inventory management, it covers the whole process of managing the warehouse, monitoring and guiding its work internally. Put simpler, inventory management is an umbrella term, inventory control is a process within it. Sometimes inventory control is being referred to as “internal warehouse control”.

As a vital part of inventory management system, inventory control also helps retailers achieve their basic primary goal - earn cash by selling goods. Each retailer can tell that sales are impossible when warehouse is not managed properly.

Inventory control helps to manage stock, maintain internal warehouse operations, clearly and nicely monitoring warehouse items. Inventory control gives you a clear understanding of your inventory assets - what do you have in your warehouse, in which quantity, and when you have to replenish stocks.

 

Inventory Control and warehouse management tips

Inventory control helps to manage stock, maintain internal warehouse operations, clearly and nicely monitoring warehouse items. Inventory control gives you a clear understanding of your inventory assets - what do you have in your warehouse, in which quantity, and when you have to replenish stocks. 

Second, what are the main functions inventory control performs?

Inventory control is a complex chain of operations, as it oversees such warehouse management aspects as: storage, shipping, replenishment, goods classification, turnover and tracking. It is so multifunctional and critical for a company’s performance that many retailers eagerly invest into automated inventory control and inventory management systems. And with a good reason. First, any human-caused error can be detrimental for the whole supply chain process, and second, it is important to have all details and components of inventory control running smoothly and integrally, as a well-tuned orchestra. 

So, here are the primary functions of inventory control:

  • specification of goods, their ID numbers and their types;
  • keeping information on goods serial numbers;
  • barcodes implementation and control;
  • ABC goods prioritizing;
  • replenishment process;
  • managing inventory lists;
  • real-life real-time warehouse reports;
  • real-time goods location tracking;
  • storage oversight;
  • accounting and tax operations associated with warehouse management;
  • synchronizing warehouse stock with sales

And, of course, the main function of any inventory control system is to decrease investment into warehouse and to increase sales by means of effective and rational inventory management. (and you get happy and loyal customers as an extra!). 

On the other side, if your warehouse is not duly controlled, this can result either in overstock or in backorder situation, both being risky for your business. First causes a dreadful excess of unsold goods on your warehouse shelves which freeze your operating capital and forces you to liquidate them, and the latter leads to customer dissatisfaction, as you can not supply them with necessary items in due time. To avoid these gloomy consequences, you should use rational inventory management system and inventory control techniques. 

Inventory control: Manual or Automated? 

if you are an owner of a micro-business or a small one, you could consider running an Excel or Google sheet manually filling in all warehouse data by hand. Huge operational mistake. And here is why: first, manual inventory control requires tremendous investment into human capital, as a person responsible shall fix even the smallest movements of goods, keeping track of goods names, types, locations, numbers etc. This work is extremely routine and tiresome, and the risk of error (we are all humans after all!) is high. 

Second, running a simple manual spreadsheet has 2-3 functions - keeping track, keeping names and numbers, keeping record of sales. In comparison, automated and intelligent inventory management machines can perform three times more functions if compared to human storekeepers, so these systems can reduce your investment in human power, perfectly managing your warehouse. 

Automated inventory control systems are cloud-based. Usually, they perform the following functions:

  • prevent the above-mentioned overstocks and backorders;
  • keep real-time data on consumer demand;
  • intelligently predict the next warehouse order by analyzing sales and goods movement;
  • synchronize with barcode readers;
  • perform accounting tasks;
  • analyze consumer behaviour and trends in sales;
  • work in close contact with accounting systems.  

Inventory control techniques and methods

So, the primary functions of inventory control systems are clear, they help retailers to effectively spend their money on warehouse replenishment and restocking and to increase cashflow by rationally controlling the warehouse internally. Let’s talk about the main techniques (or formulae) these systems use: 

1) EOQ or Economic order quantity 

Economic Order Quantity – EOQ Definition

This formula calculates the amount of stock you need using the following indicators: 

Q - economic order quantity (units)
S - ordering cost per purchase
D - demand in units
H - carrying cost per unit

Read more about this formula here

2) Reorder time formula

While the Economic order quantity formula points to the cost-effective amount of stock needed, Reorder time formula calculates the right time to order the goods. Here is a formula:

Reorder time formula

Lead time demand + Safety stock = Reorder time

You need two indicators - a lead time demand and safety stock. 

Lead time is an amount of days needed for the stock order to be delivered into your warehouse after you have put an order to your supplier. For businesses dealing with Chinese markets and shipping their stock from China, this indicator is crucial. We are talking about routine regular orders, imagine how important it becomes during any logistics breakdowns, strikes, demand surges or seasonal deliveries.

To calculate the lead time demand, multiply two numbers: lead time for a particular item and average daily consumption of this item 

Safety stock is a cushion, a buffer of goods available in your warehouse. To calculate it, multiply the highest (maximum) daily consumption of an item and the highest lead time for this item (in days). Then multiply the average daily consumption of an item and average lead time (in days). Finally, subtract the latter from the first number. Voila, this difference is your safety stock number - in items/units.

Example:

You sell mobile phone cases and accessories in Ukraine. Your supplier works in China. Usually it takes 30 days to ship your goods from China to Ukraine (this is your average lead time). Sometimes, during Christmas holidays, or demand surges, or strikes or whatsoever it takes 50 days to ship your goods (so, this is your highest lead time). 

You sell 5 cell phone cases per day on average (this is your average daily consumption), and the highest sales level you observe during Black Friday or holiday periods is 10 cell phone cases per day (this is your highest daily consumption). So, your safety stock formula looks like:

10x50 - 5x30 = 500-150 = 350 (units)

But things are never that easy. Importantly, efficient stock control needs a combination of these two methods, of both EOQ and Reorder time. One of the benefits of inventory management systems is that they perform these calculations automatically and all you have to do is to turn on automated notifications - the system will automatically update you on reorder time and quantity! 

Some conclusions

Always remember to use a properly-integrated inventory control systems in your operations. Forecasting demand, keeping record of warehouse data and replenishing it on time is a tiresome work that requires precise planning. Integrated management inventory system is a helping hand to you. It will not only keep your cashflow steady, your stock managed, your barcode scanner system efficient and customers happy, but also maintain relationship with suppliers and synchronize all warehouse processes. 
 

Find out what you need to do to properly organize your inventory

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