What Is Inventory Control? Types, Techniques & Systems

Effective inventory control is a cornerstone of smooth retail operations. It’s all about maintaining the right amount of stock—avoiding excess that ties up money and space while also steering clear of stockouts that can disappoint customers. Whether you’re managing a small retail store or a large warehouse, inventory control practices help keep operations efficient and customer satisfaction high.

In this blog, we’ll explore what inventory control entails, from its key benefits and common challenges to the different methods and techniques that businesses use. Whether you’re new to inventory control or looking to refine your approach, this blog will provide the essential knowledge you need to manage stock effectively and confidently.

Let’s dive in. 

• What is inventory control 
• Benefits of effective inventory control
• Challenges in inventory control
• Types of inventory control
• Inventory control techniques
• Inventory control systems and software

What is inventory control?

Inventory control is the process of managing stock levels to ensure you always have the right quantity of products on hand. It helps prevent overstocking or stockouts, which helps you save you money and keep customers happy by giving them what they want, when they want it.

Done well, it enables the maximum amount of profit from the least amount of investment in stock—but it requires data from sales, purchasing, warehousing, loss prevention and more to ensure efficiency and accuracy.

Though terms ‘inventory control’ and ‘inventory management’ are sometimes used interchangeably, the two are distinct:

• Inventory control is concerned with ensuring that there is enough product on hand in store branches, warehouses and other storage locations to meet customer demand while avoiding overstocking. Inventory is counted regularly and frequently—every day, if necessary.
• Inventory management is concerned with the broader supply chain process, including purchasing stock from suppliers and getting products into the hands of customers. It involves maintaining business relationships with suppliers and buyers, optimizing purchase ordering, etc.

Benefits of effective inventory control

Effective inventory control is essential to keep your business running smoothly and profitably. Here are just a few of the benefits of good inventory control (besides the obvious ‘you will pull out less of your hair in frustration’):

1. Improved accuracy and fewer errors

Effective inventory control minimizes errors by ensuring accurate stock data. With precise tracking, businesses avoid costly mistakes like stockouts or over-ordering, leading to smoother operations.

2. Workflow optimization

By streamlining inventory processes, effective control systems reduce the time spent on manual tasks and free up resources for higher-value activities. This leads to a more efficient, focused workflow.

3. Higher customer satisfaction through better stock availability

Keeping the right stock on hand ensures customers can find what they need when they need it, boosting satisfaction and loyalty by meeting demand consistently.

4. Cost savings through optimized stock levels and reduced waste

Proper inventory control helps balance stock levels, reducing waste from expired or obsolete items and cutting unnecessary storage costs.

5. Increased efficiency in supply chain operations

With better inventory control, businesses can improve supply chain efficiency, leading to smoother restocking, faster order fulfillment and better collaboration with suppliers.

Challenges in inventory control 

Inventory control is essential for all the reasons discussed above (and more). But that doesn’t make it easy. Here are some of the most common challenges in inventory control, and some potential solutions:

Types of inventory control

Periodic inventory control

A periodic inventory system usually relies on physical inventory counts to update inventory records.. Rather than an automated system that updates in real-time, it relies on frequent and comprehensive inventory audits. In other words, lots and lots of manual counting (and probably lots and lots of mistakes). 

This method can work well for smaller businesses with fewer orders and small inventories (such as a retailer who’s just getting started out), but it can be a time-sucking nightmare for businesses that deal with large inventories; sell across multiple locations or sales channels; and/or frequently move inventory. 

Perpetual inventory control

​​Perpetual inventory systems rely on technology like a cloud-based POS to update stock in real-time when a transaction happens or when new stock is received. There’s a higher upfront cost to the perpetual inventory method, because you need to pay for hardware and software, but you end up saving money in the long run because it lets you automate many of the time-consuming tasks required in the periodic control system. 

After all, your employees’ time isn’t free—it’s usually one of your biggest expenses and climbing steadily—so this short time pain is well worth the long term gain. Besides the time savings, perpetual inventory systems improve inventory tracking accuracy, which makes it easier to manage inventory and make smart inventory buying and planning decisions.

Inventory control techniques

FIFO and LIFO

FIFO and LIFO are methods used to manage and value inventory. FIFO (First in, First out) assumes that the oldest stock is sold first, while LIFO (Last in, First out) assumes that the most recently added items are sold first. LIFO, only legal in the United States, can help lower taxable income in rising price markets, whereas FIFO gives a clearer, more accurate evaluation of inventory values.

Min-Max inventory control

The Min/Max inventory control method is a reordering strategy that sets a trigger to reorder when the minimum value is reached. Then it orders the necessary to reach the maximum, or the new stock level following the order.

JIT inventory

Just-in-time (JIT) inventory is an inventory control method where you order products in small, frequent batches, and only when they are needed. The JIT method reduces holding costs, prevents overstocking and waste, and frees up cash flow. But it can also leave you more vulnerable to supply chain disruptions, stockouts and higher inventory costs/lower profit margins (no bulk discounts, paying more for frequent shipments, etc.).

Two- or three-bin system

A two- or three-bin system involves two (or three) containers of the same stock item. When one container becomes empty, you use the second or third container (the backups), which then identifies the reorder point (ROP). The backup bins are supposed to have enough items to last until the order for the first bin arrives. 

Fixed order quantity

The fixed order quantity technique triggers orders for a predetermined order quantity when stock reaches a reorder point. It’s useful for items with consistent demand, ensuring a stable supply while optimizing purchase quantities.

Fixed period ordering

Fixed period ordering involves reviewing inventory levels at set intervals and ordering stock as needed to meet demand. For example, let’s say a bookstore reviews its inventory every month. At the end of each month, they check their stock levels and place an order for any books that have fallen below a certain threshold. Whether they need five copies or twenty, they place the order based on current demand and expected sales until the next monthly review. 

Vendor-managed inventory (VMI)

In vendor-managed inventory (VMI), suppliers (or their sales reps) monitor and reorder stock as needed, saving time for the merchant and enhancing supply chain efficiency for the supplier. For example, let’s say a grocery store partners with a beverage supplier for popular drink items. Under a VMI agreement, the supplier would monitor the store’s stock levels for those products and replenish them automatically once stock levels reached a certain threshold.

Set PAR levels

Setting PAR levels involves determining a minimum quantity (PAR) of each item (or at least your most popular items) based on how fast you go through them, on average. When inventory dips below a determined PAR level, a reorder is triggered to maintain optimal stock levels to meet demand. 

To calculate optimal PAR levels, you’ll need the following data points for each item:

• average daily usage
• lead time
• safety stock

PAR formula = (Average Daily Usage × Lead Time) + Safety Stock.

Inventory control systems & software 

Manual inventory control systems

Manual inventory control systems involve tracking stock levels and movements using physical counts, spreadsheets or paper records. These systems are straightforward and budget-friendly, making them suitable for small businesses with limited inventory. However, they require significant time and effort, increasing the risk of human error and inaccuracies, especially as inventory volumes grow.

Automated inventory control systems

Automated systems leverage software and technology, such as RFID and barcode scanning, to track inventory movements accurately and efficiently. These systems provide real-time updates, minimizing human error and enhancing control over stock levels. Automated systems are ideal for businesses managing higher volumes or complex inventories, as they streamline operations and reduce manual workload.

Cloud-based inventory control solutions

Cloud-based solutions offer robust advantages, including real-time data access from any location, making them ideal for businesses with multiple locations or remote management needs. They’re highly scalable, allowing businesses to adjust inventory control features as they grow. Cloud systems also facilitate seamless updates and integrate with other business software, supporting streamlined inventory management.

The bottom line

At the end of the day, while inventory control can be challenging and time-consuming, it’s a non-negotiable part of running any retail business. There are many pros to getting it right—keeping customers happy (and not driving them into the arms of your competitors), avoiding the pitfalls of too much stock (tying up capital, paying a fortune in warehousing fees, losing money on dead or obsolescent stock, etc.), streamlined workflows and better efficiency, as well as accurate data that helps you forecast and plan your needs (to name a few).

And to be honest, with the technology and tools that are available today, inventory control doesn’t have to be the time-consuming and error-prone nightmare it may have been in the past. Lightspeed’s cloud-based retail POS and advanced inventory tools make inventory control and management easier than ever. 

Want to see what Lightspeed can do for your retail business? Talk to one of our POS experts today. 

FAQs

What is the purpose of inventory control? 

The purpose of inventory control is to ensure the right amount of stock is available at the right time. It helps businesses avoid overstocking or running out of items, saving money and keeping customers satisfied.

What is the most important factor in inventory control?

The most important factor in inventory control is accuracy. Accurate data helps you make informed decisions, optimize stock levels and meet demand without waste or shortages.