Inventory control is the process of optimizing inventory storage to ensure your business maintains an ideal level of inventory. Doing so allows you to meet customer demand without delays or additional costs incurred by stock outs.
Inventory control helps eCommerce businesses to answer the following questions:
- How much inventory should I order?
- What product categories are selling? Which aren't?
- Where can I cut costs?
- How much stock do I need for a certain product category?
- How much deadstock am I carrying? How is deadstock increasing my holding costs?
Inventory control provides much-needed visibility into your sales trends. This allows you to source the right products in a timely fashion to avoid stock outs. Inventory visibility also equips you with the insight needed to make optimal business decisions about how and when to purchase new inventory.
In this article, we'll tell you everything you need to know about inventory control. Easyship empowers eCommerce businesses of all sizes. Our global network of trusted warehouses and 3PLs have powerful inventory management systems that can help automate and streamline your inventory control processes. Find your perfect warehouse and third-party logistics provider here.
What is Inventory Control?
Inventory control is a single aspect of inventory management that focuses on managing stock levels inside a store or warehouse.
Inventory control involves the following processes:
- Syncing stock on hand with orders
- Scanning incoming product your warehouse
- Preparing items for kitting and packing
- Comprehensive inventory lists and counts
- Product details, histories and locations
- Reorder reports and adjustments
By contrast, inventory management focuses on obtaining, storing and profiting off raw materials or finished goods. This involves the following processes:
- Ordering and restocking inventory
- Storing products in the optimal location for fulfillment
- Forecasting inventory
- Tracking inventory
- Identifying areas of improvement
5 Benefits of Inventory Control
Optimized stock control helps you reduce the cost of holding inventory, improve warehouse space, and maximize profits. Here are the top benefits of inventory optimization.
- Financial savings: Inventory control will save you money by streamlining your stock ordering and management. This optimizes the money spent on purchases and reduces waste through inventory visibility and more.
- Drive customer satisfaction: It’s important to maintain inventory enough to fulfill all incoming orders. If you run out of stock, you lose money on sales but also risk alienating buyers. Proper inventory control also accounts for safety stock (extra quantity of a product which is stored in the warehouse to prevent an out-of-stock situation). Inventory control ensures you have enough stock on hand to satisfy customer demand.
- Slash holding costs: Overstocking increases holding costs prices. This includes warehousing, insurance, labor, transportation and other involved costs. With optimized stock control, carrying inventory sells quickly helps reduce all costs involved in storing unsold inventory.
- Improve warehousing by making the right decisions: Inventory control helps you identify top-selling products, slow-moving SKUs and obsolete items in your stockroom. Understanding your sales activity on a per product basis helps you identify trends, improve warehouse organization and free up space.
- Maximize profits: Inventory control provides accurate counts in each product category. This, in turn, eliminates waste and reduces carrying costs to boost revenue.
3 Ways to Do Inventory Control
Three inventory control models exist to help you identify your ideal inventory count, including:
- Economic Order Quantity (EOQ)
- Inventory Production Quantity
- ABC Analysis
Each model takes a different approach to maintaining the minimum stock level. We discuss each in the section below, so that you can decide which one fits your business best.
Economic Order Quantity (EOQ)
Economic order quantity (EOQ) is the maximum number of stock units you should order to minimize ordering and holding costs. To find your ideal stock count, EOQ considers three factors.
- Demand in units (D)
- Annual fixed costs (K)
- Carrying costs per unit (H)
Here’s the formula for calculating Economic Order Quantity:
Say your eCommerce store ships 1,000 hoodies per year. It costs you $8 per year to hold a single hoodie in stock, and the fixed cost to order a hoodie is $3.
EOQ = Sqrt (2x 1,000 hoodies x $3 order cost)/ ($8 holding cost)
Sqrt(6000/8) =27.4
The maximum order size the store should place to cut costs and satisfy customer demand is slightly above 27 hoodies.
To satisfy demand, the maximum number of hoodies you should order is 27 hoodies.
The EOQ formula assumes that consumer demand, ordering and holding costs are constant. This makes it difficult to account for seasonal spikes in demand and changes in prices, purchase discounts and lost sales revenue due to stock outs. If the demand for your products tends to fluctuate, you’ll be better served by these next two formulas.
Inventory Production Quantity
Inventory Production Quantity is also known as the Economic Production Quantity (EPQ). It helps you arrive at the number of stock units you should order in a single batch to mitigate holding and set-up costs.
The difference is that the EOQ model assumes that your order is delivered in full, while the EPQ model assumes that your supplier delivers each order in batches.
If demand for your product is consistent or you tend to order inventory in batches rather than one full order, this method may work for you. Automotive companies are good examples of businesses in this category.
The EPQ method considers the following factors :
- Demand rate in units (D)
- Annual fixed cost (K)
- Carrying costs per unit (H)
- Demand rate/production rate (X)
To arrive at your EPQ, take the square root of (2x D x K/H(1-X).
Say your store ships 2,000 hats per year. The annual holding cost per hat is $5 and the fixed cost to place an order is $2. Your demand rate/production rate is 0.75.
EPQ = Sqrt(2 x 2,000 x $2)/( $5 (1-0.75)
Sqrt(8000/1.25) = 80
The store should order inventory in batches of 80 hats to minimize costs.
ABC Analysis
This model is based on the Pareto Principle, also known as the 80/20 rule. Inventory is categorized into groups (A, B, C) based on how important the item is to your business.
You then set order frequencies based on group categories, as seen below:
- Category A: Your bestsellers, or the 20% of inventory that brings in80% of your business revenue. Goods in this category are ordered more frequently, so they're controlled most tightly when it comes to ordering..
- Category B: Steady movers, or the 30% of your stock that brings in 25% of your revenue goes in category B. The item matters, but it’s not essential for your business to survive. You order these goods once every three months.
- Category C: Low-selling items. The 50% of your products that bring in 5% of revenue. The goods you order once or twice per year.
This model is ideal for big companies that carry a diversity of products at various price point categories with a large price range. Observing demand in any category helps these businesses anticipate their ordering.
The downside to the ABC method is the time required to categorize each item. Otherwise, you may end up putting money on items that aren't bringing you the most money.
6 Best Practices for Inventory Control
Inventory control requires you to tread a thin line between reducing holding costs, maximizing profits and satisfying customer demand. Here are the six best practices to help you achieve efficient inventory control:
- Use inventory management software like Easyship for real-time inventory tracking.
- Set reorder points for individual SKUs to trigger inventory replenishments to prevent stock outs.
- Categorize inventory according to demand fluctuations. For instance, you don't want to stock winter coats in summer.
- Organized your warehouse by product category to streamline order fulfillment
- Perform regular audits to harmonize physical inventory with recorded inventory and discover any discrepancies.
Streamline Inventory Control With Easyship
Inventory control procedures help you determine the right stock levels for each SKU, helping you meet customer demand without increasing holding costs. This way, you can slash operational and warehousing costs, maximize profits and keep your customers happy.
Using an eCommerce platform like Easyship that integrates directly with your store's inventory management software is a big plus. You can get orders synced back to your store in real-time when you ship out packages. This maintains inventory visibility and flawless stock counts.
Want to tap into our network of warehouses and 3PLs with powerful inventory management software? Create your free Easyship account and get in touch today.
Inventory Control FAQ
What is the main function of an inventory control system?
Its main function is to assist you in keeping track of your orders, inventory levels, sales and deliveries.
What is an inventory control model?
The inventory control model tells you the number of products your business should order in a single batch. This helps reduce holding costs and setup costs.
